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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
[MARK ONE]
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994,
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _________ TO _________
COMMISSION FILE NUMBER 1-4300
APACHE CORPORATION
A DELAWARE IRS EMPLOYER
CORPORATION NO. 41-0747868
ONE POST OAK CENTRAL
2000 POST OAK BOULEVARD, SUITE 100
HOUSTON, TEXAS 77056-4400
TELEPHONE NUMBER (713) 296-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock, $1.25 Par Value New York Stock Exchange
Chicago Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
Chicago Stock Exchange
9.25% Notes due 2002 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
Aggregate market value of the voting stock held by non-affiliates
of registrant as of May 17, 1995 $1,939,528,058
Number of shares of registrant's common stock outstanding
as of May 17, 1995 69,892,903
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of registrant's proxy statement relating to registrant's 1995
annual meeting of shareholders have been incorporated by reference into Part III
hereof.
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TABLE OF CONTENTS
DESCRIPTION
ITEM PAGE
- ---- PART I ----
1 BUSINESS ........................................................... 2
2 PROPERTIES ......................................................... 10
3 LEGAL PROCEEDINGS .................................................. 14
4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ................ 14
PART II
5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS ................................................ 15
6 SELECTED FINANCIAL DATA ............................................ 16
7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS .......................................... 17
8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ........................ 26
9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE ........................................... 26
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ................. 27
11. EXECUTIVE COMPENSATION ............................................. 27
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT ......................................................... 27
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ..................... 27
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K ........................................................... 28
All defined terms under Rule 4-10(a) of Regulation S-X shall have their
statutorily-prescribed meanings when used in this report. Quantities of natural
gas are expressed in this report in terms of thousand cubic feet (Mcf), million
cubic feet (MMcf) or billion cubic feet (Bcf). Oil is quantified in terms of
barrels (bbls), thousands of barrels (Mbbls) and millions of barrels (MMbbls).
Natural gas is compared to oil in terms of barrels of oil equivalent (boe) or
million barrels of oil equivalent (MMboe). Oil and natural gas liquids are
compared with natural gas in terms of million cubic feet equivalent (MMcfe) and
billion cubic feet equivalent (Bcfe). One barrel of oil is the energy equivalent
of six Mcf of natural gas. Daily oil and gas production is expressed in terms of
barrels of oil per day (bopd) and thousands of cubic feet of gas per day (Mcfd)
or millions of British thermal units per day (MMBtud), respectively. Gas sales
volumes may be expressed in terms of one million British thermal units (MMBtu),
which is approximately equal to one Mcf. With respect to information relating to
the Company's working interest in wells or acreage, "net" oil and gas wells or
acreage is determined by multiplying gross wells or acreage by the Company's
working interest therein. Unless otherwise specified, all references to wells
and acres are gross.
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PART I
ITEM 1. BUSINESS
GENERAL
Apache Corporation (Apache or the Company), a Delaware corporation formed in
1954, is an independent energy company that explores for, develops, produces,
gathers, processes and markets natural gas and crude oil. In North America,
Apache's exploration and production interests are spread over 15 states in the
U.S. and two Canadian provinces, focusing on the Gulf of Mexico, the Anadarko
Basin of Oklahoma, the Permian Basin of West Texas and New Mexico, the Gulf
Coast region, the Western Sedimentary Basin in Canada and the Rocky Mountain
region. Internationally, Apache has production interests in Australia and is
currently focusing its international exploration efforts offshore Western
Australia, China and the Ivory Coast, and in Indonesia and Egypt. Apache's
common stock has been listed on the New York Stock Exchange since 1969, and on
the Chicago Stock Exchange since 1960.
Apache holds interests in many of its U.S., Canadian and international
properties through operating subsidiaries, such as MW Petroleum Corporation
(MW), DEK Energy Company (DEKALB, formerly known as DEKALB Energy Company),
Apache Energy Resources Corporation (AERC, formerly known as Hadson Energy
Resources Corporation), Apache Energy Limited (AEL, formerly known as Hadson
Energy Limited), Apache International, Inc. and Apache Overseas, Inc.
Properties referred to in this document may be held by those subsidiaries.
Apache treats all operations as one segment of business.
On May 17, 1995, Apache acquired DEKALB, an oil and gas company engaged in
the exploration for, and the development of, crude oil and natural gas in
Canada, through a merger which resulted in DEKALB becoming a wholly-owned
subsidiary of Apache. Pursuant to the merger agreement, Apache issued 8.4
million shares of its common stock in exchange for outstanding DEKALB stock and
for DEKALB employee stock options that remained outstanding at the time of the
merger. The merger was accounted for as a "pooling of interests" for financial
accounting purposes. As a result, this Amendment No. 1 on Form 10-K/A has been
prepared to present information for 1994 and preceding years on a combined basis
using the pooling method of accounting.
1994 RESULTS
In 1994, Apache had net income of $45.6 million, or $.65 per share, on total
revenues of $592.6 million. Net cash provided by operating activities during
1994 was $358 million.
The year 1994 was Apache's seventeenth consecutive year of production growth
and seventh consecutive year of oil and gas reserves growth. Apache's average
daily production was approximately 38 Mbbls of oil and 483 MMcf of natural gas
for the year. The Company's estimated proved reserves at December 31, 1994, were
330 MMboe, of which approximately 66 percent was natural gas. Apache's growth in
reserves during the year reflects the replacement of 199 percent of the
Company's 1994 production. Approximately 41 percent of the newly added reserves
were acquired through Apache's ongoing acquisition efforts. The remainder was
attributable to Apache's active drilling and workover program, which yielded 296
new producing U.S. and Canadian wells out of 367 attempts, and involved 415
U.S. and Canadian workover and recompletion projects during the year.
At December 31, 1994, Apache had interests in approximately 4,085 net oil
and gas wells and 1,032,982 net developed acres of oil and gas properties. In
addition, the Company had interests in 760,270 net undeveloped acres under U.S.
and Canadian leases and 4,239,290 net undeveloped acres under international
exploration and production rights.
APACHE'S GROWTH STRATEGY
Apache's growth strategy is to increase production, reserves and cash flow
through a combination of acquisitions, moderate-risk drilling and development of
its inventory of existing projects. The Company also emphasizes reducing
operating costs per unit produced and selling marginal and non-strategic
properties in order to increase its profit margins.
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For Apache, property acquisition is only one phase in a continuing cycle of
business growth. Apache's aim is to follow each acquisition cycle with a cycle
of reserve enhancement, property consolidation and cash flow acceleration,
facilitating asset growth and debt reduction. This approach requires
well-planned and carefully executed property development and a commitment to a
selective program of ongoing property dispositions. It motivates Apache to
target acquisitions that have ascertainable additional reserve potential and to
apply an active drilling, workover and recompletion program to realize the
potential of the acquired undeveloped and partially developed properties. Apache
prefers to operate its properties so that it can best influence their
development; as a result, the Company operates properties accounting for over 75
percent of its production.
Pursuing its acquire-and-develop strategy, Apache increased its total proved
reserves more than 242 MMboe, or nearly 276 percent in the last ten years. In
addition to its acquisition strategy, Apache continues to develop and exploit
its existing inventory of workover, recompletion and other development projects
to increase reserves and production. During 1994, Apache acquired $180.7 million
of additional properties and replaced over 106 percent of its U.S. production
through its drilling, workover and recompletion program.
Apache's international investments supplement its long-term growth strategy.
Although international exploration is recognized as higher-risk than most of
Apache's U.S. and Canadian activities, it offers potential for greater rewards
and significant reserve additions. Apache directed its international efforts in
1994 towards the exploration and development of properties in Western Australia,
China, Indonesia, Egypt, The Congo and the Ivory Coast of western Africa, where
it believes that reserve additions may be made through higher-risk exploration
and through improved production practices and recovery techniques.
RECENT ACQUISITIONS AND DISPOSITIONS
TRANSACTIONS IN EARLY 1995. On March 1, 1995, Apache purchased certain U.S.
oil and gas properties from Texaco Exploration and Production Inc. (Texaco) for
an adjusted purchase price of $571 million, effective January 1, 1995. The
transaction is subject to customary closing and post-closing adjustments, and
includes proved reserves at the effective date of approximately 113 million
barrels of energy equivalent, of which approximately 70 percent is oil. At the
time of purchase, the daily production on the acquired properties was
approximately 20 Mbbls of oil and 85 MMcf of gas.
The Texaco properties are highly concentrated, with approximately two-thirds
of the reserves located in 54 fields, and are in producing regions where Apache
has existing operations -- the Permian Basin, the Gulf Coast of Texas and
Louisiana, western Oklahoma, eastern Texas, the Rocky Mountains and the Gulf of
Mexico. Apache will operate approximately two-thirds of the production and
acquire an average working interest of 70 percent in the operated properties.
The Texaco transaction includes approximately 500,000 net mineral acres, as well
as a substantial quantity of seismic data.
Information concerning Apache's acquisition of DEKALB is set forth above
under the heading "General".
In early 1995, Apache announced plans to accelerate the disposition of
lower margin and non-strategic properties, including sales of a substantial
portion of its Rocky Mountain properties and non-strategic assets from its
other regions.
1994 ACQUISITIONS. On December 30, 1994, Apache purchased substantially all
of the U.S. oil and gas properties of Crystal Oil Company (Crystal) for
approximately $95.8 million. The producing properties acquired from Crystal are
located primarily along the Arkansas-Louisiana border and in southern Louisiana,
and daily production at the time of acquisition was approximately 20 MMcf of gas
and 2,700 bbls of oil. The acquisition also included approximately 32,000 net
undeveloped mineral acres in southern Louisiana. Apache acquired an average
80-percent working interest in the properties overall, including a 97-percent
working interest in two fields that account for approximately 60 percent of the
value.
During 1994, Apache also acquired approximately 16 MMboe of proved reserves
through 90 smaller, tactical acquisitions for an aggregate consideration of
$84.9 million. Apache also sold $19.6 million of its non-strategic properties
during 1994.
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1993 ACQUISITIONS. In 1993, Apache entered into two agreements to purchase a
combined 104 Bcfe of proved reserves in the Gulf of Mexico from Hall-Houston Oil
Company (Hall-Houston) for an aggregate consideration of $113.7 million. In June
1993, Apache closed the first of the two transactions, paying $29.3 million for
Hall-Houston's interest in Mustang Island Blocks 787 and 805. Apache acquired
substantially all of Hall-Houston's other producing properties in the Gulf of
Mexico for an additional $84.4 million in the second transaction which closed on
August 31, 1993. With the Hall-Houston transactions, Apache more than doubled
its existing interest in offshore gas production, acquiring interests in 63
producing fields and 12 fields under development or awaiting pipeline
connections.
Apache acquired Hadson Energy Resources Corporation (now AERC) through a
series of private transactions and a subsequent merger on November 12, 1993. The
aggregate consideration paid for the acquisition was approximately $98 million,
including the issuance of 307,977 shares of Apache common stock. Apache acquired
AERC and its subsidiaries subject to approximately $67.6 million of net
liabilities at the time of the merger. Through the acquisition of AERC, Apache
added proved reserves of 66 Bcfe in the U.S. and 64 Bcfe in Australia. AERC's
reserves fit well with Apache's existing interests in Oklahoma and the Carnarvon
Basin offshore Western Australia. In the U.S., nearly two-thirds of the value of
AERC's properties are concentrated in Oklahoma, where Apache was already the
largest independent gas producer. AERC's operations in Western Australia,
including the Harriet complex of oil and natural gas fields, provide Apache with
the reserves and infrastructure required for the commercial development of
certain other Australian interests.
During 1993, Apache also acquired 12 MMboe of proved reserves through 76
smaller, tactical acquisitions for an aggregate consideration of $78.6 million.
Apache also sold $3.4 million of its non-strategic properties during 1993.
EXPLORATION AND PRODUCTION
The Company's North American exploration and production activities are
divided into five U.S. operating regions, the Gulf of Mexico, Midcontinent,
Permian Basin, Gulf Coast and Rocky Mountain regions, plus a Canadian region.
Approximately 96 percent of the Company's proved reserves are located in the
five U.S. regions and Canada. Apache conducts its Australian exploration and
production and its Indonesian exploration through its Australian region, while
all other international interests are directed by the Company through its
principal offices in Houston, Texas. Information concerning the amount of
revenue, operating income and identifiable assets attributable to U.S., Canadian
and international operations, respectively, is set forth in the Supplemental Oil
and Gas Disclosures under Item 8 below, and incorporated herein by reference.
GULF OF MEXICO. As a result of Apache's acquisition of Matagorda Island
Blocks 681 and 682 in late 1992 and the Hall-Houston transactions in 1993, the
Gulf of Mexico became Apache's largest producing region. Due to the growth
resulting from these acquisitions, Apache divided its former Gulf Coast region
into two regions: Gulf of Mexico and Gulf Coast. The Gulf of Mexico region
encompasses all of Apache's interests in properties offshore Texas, Louisiana
and Alabama. By year-end 1994, Apache increased its production in the Gulf of
Mexico to approximately 203 MMcf of gas per day.
At December 31, 1994, the Gulf of Mexico region encompassed 282,302 net
acres, located in both state and federal waters, and accounted for 48.1 MMboe,
or 15 percent, of the Company's year-end 1994 reserves. Apache participated in
28 wells which were drilled in the region during the year, 21 of which were
completed as producers. The Company performed 36 workover and recompletion
operations in the region during 1994.
MIDCONTINENT. Apache's Midcontinent region is known for its sizable position
in the Anadarko Basin. Apache has drilled and operated in the Anadarko Basin for
over three decades, developing an extensive database of geologic information and
a substantial acreage position. In 1993, Apache enhanced its position through
the acquisition of AERC with its significant acreage and producing interests in
the Anadarko Basin.
At December 31, 1994, Apache held an interest in 271,770 net acres in the
region, which accounted for approximately 75.7 MMboe, or 23 percent, of Apache's
total proved reserves. Apache participated in 103 wells which were drilled in
the Midcontinent region during the year, 90 of which were completed as producing
wells. The Company performed 36 workover and recompletion operations in the
region during 1994.
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PERMIAN BASIN. The Permian Basin of West Texas and New Mexico remained an
important region to Apache in 1994, generating 16 percent of the Company's
production revenues for the year. As of December 31, 1994, Apache held an
interest in 103,247 net acres in the region, which accounted for 57.6 MMboe, or
17 percent, of the Company's total proved reserves. Apache's operations in the
Permian Basin focused primarily on workovers and recompletions, which totaled 51
for the year. Compared with 1993, Apache nearly doubled its drilling activity in
the region during 1994, with 32 of the 38 wells drilled in the region completed
as producers.
GULF COAST. The Gulf Coast region encompasses the Texas and Louisiana
coasts, central Texas, Mississippi and Alabama. In 1994, the region was one of
the most prominent in the Company in the number of workover and recompletion
projects completed and the number of wells drilled. Apache participated in 85
wells drilled in the Gulf Coast region during the year, 74 of which were
completed as producers, including 30 Austin Chalk wells in central Texas, all of
which were productive. The Company performed 173 workover and recompletion
operations during 1994 in the Gulf Coast region. As of December 31, 1994, the
region encompassed approximately 194,107 net acres, and accounted for 43 MMboe,
or 13 percent, of the Company's year-end 1994 total proved reserves.
ROCKY MOUNTAIN. In the Rocky Mountain region, Apache emphasized oil
enhancement opportunities during 1994, conducting 94 development projects. At
year-end, Apache held an interest in 481,162 net acres in the region, which
accounted for approximately 34.2 MMboe, or 10 percent, of the Company's total
proved reserves. Apache participated in 45 wells in the region during the year,
26 of which were productive. Apache has announced the Company's intention to
sell in 1995 substantially all of its Rocky Mountain properties in connection
with its property rationalization program, which emphasizes the disposition of
lower margin properties. The Company currently intends to close its Rocky
Mountain regional office, located in Denver, Colorado, and redeploy those
employees to provide support for its Gulf Coast, Permian Basin and Canadian
operations.
CANADA. The Canadian region concentrates its exploration and development
activity in the Provinces of Alberta and British Columbia, generating eight
percent of the Company's revenues in 1994. Apache participated in 68 wells in
this region during the year, 53 of which were completed as producers. The
Company performed 25 workovers and recompletions on operated wells during 1994.
At December 31, 1994, the region encompassed approximately 408,114 net acres,
and accounted for 60.7 MMboe, or 18 percent, of the Company's year-end 1994
total proved reserves.
AUSTRALIA. The state of Western Australia has become an important region for
Apache following the completion of the AERC acquisition. In the fourth quarter
of 1993, Apache consolidated the operation of its Australian properties with
AERC's Australian subsidiary, AEL, headquartered in Perth, Western Australia.
During 1994, AEL participated in two successful horizontal development wells in
the Harriet field, offshore Western Australia, and also participated in nine
exploratory wells. Average oil production in the region increased by 70 percent
from 1993 to approximately 3,200 bbls per day for 1994, primarily as a result of
the addition of the AERC properties in the second half of 1993.
As of December 31, 1994, Apache held 3,373,150 net developed and undeveloped
acres in Western Australia. Australian reserves accounted for 10.8 MMboe, or
three percent, of the Company's total proved reserves at year end. Through AEL
and its subsidiaries, Apache also owns a 22.5-percent interest in and operates
the Harriet Gas Gathering Project, a gas processing and compression facility
with a throughput capacity of 80 MMcfd, and a 60-mile, 12-inch offshore pipeline
with a throughput capacity of 175 MMcfd. The facilities are located in close
proximity to AEL's producing properties offshore in the Carnarvon Basin. During
1994, AEL produced 2.9 bcf of natural gas. Through AEL, Apache acts as operator
for most of its properties in Western Australia.
In early 1993, Apache took over as operator and increased its interest in
the Java Sea IV block, offshore Indonesia, and the Padang Panjang block on the
island of Sumatra, Indonesia. In early 1994, operations for Indonesia were
consolidated under the direction of AEL out of its offices in Perth, Western
Australia. In 1994, two exploratory wells were drilled in Indonesia, one of
which was a discovery.
OTHER INTERNATIONAL OPERATIONS. Outside of Australia, Apache's international
interests currently consist only of exploration interests. In 1994, Apache
Overseas, Inc., Apache International, Inc. and their subsidiaries (excluding
Australia and Indonesia as discussed above) drilled three gross exploratory
wells - one each in Egypt, China and The Congo, resulting in two discoveries.
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One discovery well was in Zhao Dong block in the Bohai Bay, offshore the
People's Republic of China, where Apache has a 33-percent interest in an area
containing approximately 48,677 undeveloped acres (16,225 acres net to Apache).
The well tested at a rate of over 2,000 bbls per day and was confirmed by an
appraisal well which tested at over 3,500 bbls per day. Future plans call for at
least one additional appraisal well which, if successful, would lead to field
development of the block.
Apache holds a 25-percent interest in the two-million acre Qarun block in
the western desert of Egypt which is operated by Phoenix Resource Companies of
Qarun. In 1994, Apache participated in an apparent discovery well in the Qarun
block which was plugged and abandoned when well bore problems developed. Plans
call for an appraisal well on the same structure. In February 1995, Apache and
its partners announced the discovery of a second field in the Qarun block
approximately two kilometers from its first apparent discovery. The second well
tested at rates up to 1,370 bopd.
In the Congo, an Apache subsidiary participated in a discovery well that
tested at a rate over 2,000 bbls per day. Through its subsidiary, Apache holds a
20-percent working interest in the well. An appraisal well and an additional
exploratory well are planned for 1995.
OIL AND NATURAL GAS MARKETING
During 1994, Apache sold approximately 89 percent of its U.S. natural gas on
the spot market through Natural Gas Clearinghouse (NGC) or through market
responsive contracts with other parties; the remaining 11 percent was sold
through long-term, premium-priced contracts. Sales to NGC accounted for 37
percent of the Company's oil and gas revenues in 1994. Apache and NGC have
agreed that NGC will market substantially all of Apache's U.S. spot market gas
production under terms of their agreement which is effective through September
1995. The Company believes that if the NGC contract were terminated, it would
not have a material adverse effect on the Company due to the existence of
alternative marketing arrangements and purchasers. Apache does not anticipate
any significant extension of its arrangement with NGC beyond the current term,
and the Company is exploring alternative means to market its gas following
termination of such arrangement.
In December 1994, the Company signed a long-term gas contract under which
Apache received an advance payment of $67.4 million. Apache will supply the
purchaser with approximately 43 Bcf of gas over six years, with volumes
averaging 20 MMcfd. Initial deliveries began in January 1995. Apache also signed
a long-term gas supply agreement with a cogeneration company in August 1994,
under which Apache will supply a minimum of 51.1 Bcf over ten years for use in
electric power generation from its cogeneration facility located in northeast
Texas. Deliveries of approximately 20 MMcfd are scheduled to begin in early
1997.
Apache assumed its own U.S. crude oil marketing operations in 1992. Most of
Apache's crude oil production is sold through lease-level marketing to refiners,
traders and transporters, generally under 30-day contracts that renew
automatically until canceled.
Oil produced from Canadian properties is sold to crude oil purchasers or
refiners at market prices which depend on worldwide crude prices adjusted for
location and quality of the oil. Natural gas produced from Canadian properties
is sold to major aggregators of natural gas, gas marketers and direct users
under long and short-term contracts. Oil and gas contracts provide for sales at
specified prices, or at prices which are subject to change due to market
conditions.
The Company diversifies the markets for its Canadian gas production by
selling directly or indirectly to customers through aggregators and brokers in
the United States and Canada. The Company transports natural gas via the
Company's firm transportation contracts to California (12MMcfd) and to the
Province of Ontario, Canada (four MMcfd) through end-users' firm transportation
contracts. In 1994, the Company contracted for the sale of five MMcfd of
natural gas to the Hermiston Cogeneration Project, located in the Pacific
Northwest of the United States. The Hermiston Project is expected to commence
purchases of natural gas in the third quarter of 1996.
In Australia, approximately 22 Bcf of AEL's proved gas reserves are
dedicated to the Gas Corporation of Western Australia, a corporation owned by
the government of Western Australia doing business as AlintaGas (formerly the
State Energy Commission of Western Australia or SECWA), under a long-term
contract with a remaining period of 7-1/2
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years. The agreement contains take-or-pay provisions that require AlintaGas to
purchase a minimum of 35 MMcfd (approximately eight MMcfd net to AEL) through
the remainder of the contract term at a stated minimum price that escalates with
the Western Australia consumer price index. Payments received under this
contract are in Australian dollars. If for any reason the AlintaGas contract was
canceled, AEL might not be able to find other markets for its gas produced from
the Harriet field.
AEL markets all oil and natural gas liquids produced from its interests in
the Harriet field through a contract with Marubeni International Petroleum
(Singapore) Pte Limited (Marubeni), which was extended in 1994. Pricing under
the contract in 1994 represented a fixed premium to the average of the quoted
spot market prices of Tapis and Dubai crude oil, with payment made in U.S.
dollars. Production sold under this contract in 1994 realized an average price
of $18.23 per barrel (exclusive of the impact of hedging activities). In 1995,
pricing under this contract will represent a fixed premium of the quoted spot
market price of Tapis crude oil. The Company believes that if this contract were
terminated, it would not have a material adverse effect on the Company due to
the demand for Australian crude oil and the existence of alternative purchasers.
OIL AND NATURAL GAS PRICES
Natural gas prices remained volatile in 1994 with Apache's average gas
prices during the year ranging from $ 1.48 per Mcf in October to $2.11 per Mcf
in February. Fluctuations are largely due to natural gas supply and demand
perceptions. Apache's average realized gas price of $1.78 per Mcf for 1994
declined eight percent from the prior-year average of $1.94 per Mcf. Apache's
1993 average realized natural gas price increased 17 percent above the 1992
average of $1.66 per Mcf.
Due to the escalating price contract with AlintaGas, AEL's natural gas
production in Western Australia is not subject to the same degree of price
volatility as is Apache's U.S. and Canadian gas production; however, natural gas
sales under the AlintaGas contract represented only about two percent of the
Company's total natural gas sales at year end. In 1994, the price received for
production under the contract averaged $1.94 per Mcf. Total Australian gas sales
in 1994, including sales under the AlintaGas contract and spot sales to other
parties, averaged $1.90 per Mcf, six percent above the 1993 average of $1.79 per
Mcf.
Oil prices remained vulnerable due to unpredictable political and economic
forces during 1994, but partially recovered from the five-year low that Apache
experienced in the fourth quarter of 1993. Management believes that, absent a
comprehensive U.S. energy policy, oil prices will continue to fluctuate in
response to changes in the policies of the Organization of Petroleum Exporting
Countries (OPEC), events in the Middle East and other factors associated with
the world political environment. As a result of the many uncertainties
associated with levels of production maintained by OPEC and other oil producing
countries, the availabilities of world-wide energy supplies and the competitive
relationships and consumer perceptions of various energy sources, management is
unable to predict what changes will occur in crude oil and natural gas prices.
Apache's worldwide crude oil price averaged $15.65 per barrel in 1994, seven
percent lower than the average price of $16.74 per barrel in 1993, and 14
percent lower than the average price of $18.11 per barrel in 1992. Apache's
average crude oil price for its Australian production, including production sold
under the Marubeni contract, was $17.95 per barrel in 1994, seven percent lower
than the average price in 1993.
Terms of the acquisition of MW from Amoco Production Company (Amoco)
included an oil and gas price sharing provision under which certain price
sharing payments may be payable to Amoco. Pursuant to this provision, to the
extent that oil prices exceed specified reference prices that rise to $33.12 per
barrel over the eight-year period ending June 30, 1999, and to the extent that
gas prices exceed specified reference prices that rise to $2.68 per Mcf over the
five-year period ending June 30, 1996, Apache will share the excess price
realization with Amoco on a portion of the MW production.
From time to time, Apache buys or sells contracts to hedge a limited portion
of its future oil and gas production against exposure to spot market price
changes. (See Note 8 to the Company's financial statements under Item 8 below.)
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The Company's business has been and will continue to be affected by future
worldwide changes in oil and gas prices and the relationship between the prices
of oil and gas. No assurance can be given as to the trend in, or level of,
future oil and gas prices.
RESERVE VALUE CEILING TEST
Under the Securities and Exchange Commission's full cost accounting rules,
the Company reviews the carrying value of its oil and gas properties each
quarter on a country-by-country basis. Under full cost accounting rules,
capitalized costs of oil and gas properties may not exceed the present value of
estimated future net revenues from proved reserves, discounted at 10 percent,
plus the lower of cost or fair market value of unproved properties, as adjusted
for related tax effects and deferred tax reserves. Application of this rule
generally requires pricing future production at the unescalated oil and gas
prices in effect at the end of each fiscal quarter and requires a write-down if
the "ceiling" is exceeded, even if prices declined for only a short period of
time. If a write-down is required, the one-time charge to earnings would not
impact cash flow from operating activities. The Company had no write-downs due
to ceiling test limitations during 1994, but a further weakening of oil and gas
prices from year-end levels could result in a write-down of oil and gas
properties during 1995.
GOVERNMENT REGULATION OF THE OIL AND GAS INDUSTRY
The Company's exploration, production and marketing operations are regulated
extensively at the federal, state and local levels, as well as by other
countries in which the Company does business. Oil and gas exploration,
development and production activities are subject to various laws and
regulations governing a wide variety of matters. For example,
hydrocarbon-producing states have statutes or regulations addressing
conservation practices and the protection of correlative rights, and such
regulations may affect Apache's operations and limit the quantity of
hydrocarbons Apache may produce and sell. Other regulated matters include
marketing, pricing, transportation, and valuation of royalty payments.
At the U.S. federal level, the Federal Energy Regulatory Commission (FERC)
regulates interstate transportation of natural gas under the Natural Gas Act and
regulates the maximum selling prices of certain categories of gas sold in "first
sales" in interstate and intrastate commerce under the Natural Gas Policy Act
(NGPA). Effective January 1, 1993, the Natural Gas Wellhead Decontrol Act
deregulated natural gas prices for all "first sales" of natural gas, which
includes all sales by Apache of its own production. As a result, all sales of
the Company's natural gas produced in the U.S. may be sold at market prices,
unless otherwise committed by contract.
Apache's gas sales are affected by regulation of intrastate and interstate
gas transportation. In an attempt to promote competition, the FERC has issued a
series of orders which have altered significantly the marketing and
transportation of natural gas. The effect of these orders has been to enable the
Company to market its natural gas production to purchasers other than the
interstate pipelines located in the vicinity of its producing properties. The
Company believes that these changes have generally improved the Company's access
to transportation and have enhanced the marketability of its natural gas
production. To date, Apache has not experienced any material adverse effect on
gas marketing as a result of these FERC orders; however, the Company cannot
predict what new regulations may be adopted by the FERC and other regulatory
authorities, or what effect subsequent regulations may have on its future gas
marketing.
ENVIRONMENTAL MATTERS
Apache, as an owner or lessee and operator of oil and gas properties, is
subject to various federal, provincial, state, local and foreign country laws
and regulations relating to discharge of materials into, and protection of, the
environment. These laws and regulations may, among other things, impose
liability on the lessee under an oil and gas lease for the cost of pollution
clean-up resulting from operations, subject the lessee to liability for
pollution damages, require suspension or cessation of operations in affected
areas and impose restrictions on the injection of liquids into subsurface
aquifers that may contaminate groundwater.
Apache maintains insurance coverage which it believes are customary in the
industry, although it is not fully insured against all environmental risks. The
Company is not aware of any environmental claims existing as of
8
10
December 31, 1994, which would have a material impact upon the Company's
financial position or results of operations.
Apache has made and will continue to make expenditures in its efforts to
comply with these requirements, which it believes are necessary business costs
in the oil and gas industry. Apache has established policies for continuing
compliance with environmental laws and regulations, including regulations
applicable to its operations in Canada, Australia and other countries. Apache
has also established operational procedures designed to limit the environmental
impact of its field facilities. The costs incurred by these policies and
procedures are inextricably connected to normal operating expenses such that the
Company is unable to separate the expenses related to environmental matters;
however, the Company does not believe any such additional expenses are material
to its financial position or results of operations.
Although environmental requirements do have a substantial impact upon the
energy industry, generally these requirements do not appear to affect Apache any
differently, or to any greater or lesser extent, than other companies in the
industry. Apache does not believe that compliance with federal, state, local or
foreign country provisions regulating the discharge of materials into the
environment, or otherwise relating to the protection of the environment, will
have a material adverse effect upon the capital expenditures, earnings or
competitive position of the Company or its subsidiaries, but there is no
assurance that changes in or additions to laws or regulations regarding the
protection of the environment will not have such an impact.
COMPETITION
The oil and gas industry is highly competitive. Because oil and gas are
fungible commodities, the principal form of competition with respect to product
sales is price competition. Apache strives to maintain the lowest finding and
production costs possible to maximize profits.
As an independent oil and gas company, Apache frequently competes for
reserve acquisitions, exploration leases, licenses, concessions and marketing
agreements against companies with substantially larger financial and other
resources than Apache possesses. Moreover, many competitors have established
strategic long-term positions and maintain strong governmental relationships in
countries in which the Company may seek new entry. Apache expects this high
degree of competition to continue.
EMPLOYEES
On December 31, 1994, Apache had 1,182 full-time employees.
OFFICES
Apache's principal executive offices are located at One Post Oak Central,
2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400. During 1994, the
Company maintained regional exploration and production offices in Tulsa,
Oklahoma; Houston, Texas; Denver, Colorado; Calgary, Alberta; and Perth, Western
Australia. In 1995, the Company intends to close its Denver, Colorado office and
redeploy those employees to its remaining regional offices.
9
11
ITEM 2. PROPERTIES
OIL AND GAS EXPLORATION AND PRODUCTION PROPERTIES AND RESERVES
ACREAGE
The developed and undeveloped acreage, including both U.S. leases and
international production and exploration rights that Apache held as of December
31, 1994, are as follows:
Undeveloped Acreage Developed Acreage
------------------- -----------------
Gross Net Gross Net
Acres Acres Acres Acres
----- ----- ----- -----
GULF OF MEXICO
Alabama . . . . . . . . . . . . . . . . . . . . -- -- 54,749 13,432
Louisiana . . . . . . . . . . . . . . . . . . . 113,933 51,755 240,371 99,056
Texas . . . . . . . . . . . . . . . . . . . . . 96,543 58,805 130,889 59,254
--------- ------- --------- -------
Total . . . . . . . . . . . . . . . . . . . . . 210,476 110,560 426,009 171,742
--------- ------- --------- -------
MIDCONTINENT
Arkansas . . . . . . . . . . . . . . . . . . . . 833 637 3,900 1,824
Kansas . . . . . . . . . . . . . . . . . . . . . 40 40 -- --
Louisiana . . . . . . . . . . . . . . . . . . . 11,905 6,427 82,360 37,668
Oklahoma . . . . . . . . . . . . . . . . . . . . 40,657 15,555 445,935 166,976
Texas . . . . . . . . . . . . . . . . . . . . . 4,939 3,679 74,382 38,964
--------- ------- --------- -------
Total . . . . . . . . . . . . . . . . . . . . . 58,374 26,338 606,577 245,432
--------- ------- --------- -------
PERMIAN BASIN
New Mexico . . . . . . . . . . . . . . . . . . . 4,801 2,026 62,613 19,036
Texas . . . . . . . . . . . . . . . . . . . . . 73,548 37,206 67,650 44,979
--------- ------- --------- -------
Total . . . . . . . . . . . . . . . . . . . . . 78,349 39,232 130,263 64,015
--------- ------- --------- -------
GULF COAST
Alabama . . . . . . . . . . . . . . . . . . . . 1,153 678 483 204
Florida . . . . . . . . . . . . . . . . . . . . 162 14 -- --
Louisiana . . . . . . . . . . . . . . . . . . . 5,686 4,678 67,090 26,961
Mississippi . . . . . . . . . . . . . . . . . . 2,042 781 12,944 3,686
New Mexico . . . . . . . . . . . . . . . . . . . -- -- 7,698 3,676
Texas . . . . . . . . . . . . . . . . . . . . . 48,620 27,103 181,314 126,326
--------- ------- --------- -------
Total . . . . . . . . . . . . . . . . . . . . . 57,663 33,254 269,529 160,853
--------- ------- --------- -------
ROCKY MOUNTAIN
Colorado . . . . . . . . . . . . . . . . . . . . 57,845 34,035 3,001 2,412
Kansas . . . . . . . . . . . . . . . . . . . . . 6,190 2,047 160 --
Michigan . . . . . . . . . . . . . . . . . . . . -- -- 40 6
Montana . . . . . . . . . . . . . . . . . . . . 27,862 10,177 10,952 7,444
Nebraska . . . . . . . . . . . . . . . . . . . . 658 329 80 10
Nevada . . . . . . . . . . . . . . . . . . . . . 149,493 65,674 1,880 881
New Mexico . . . . . . . . . . . . . . . . . . . 10,975 10,421 39,290 27,999
North Dakota . . . . . . . . . . . . . . . . . . 48,950 20,214 43,371 23,318
South Dakota . . . . . . . . . . . . . . . . . . 720 146 3,640 2,835
Utah . . . . . . . . . . . . . . . . . . . . . . 200 200 1,680 1,034
Wyoming . . . . . . . . . . . . . . . . . . . . 461,137 251,175 35,516 20,805
--------- ------- --------- -------
Total . . . . . . . . . . . . . . . . . . . . . 764,030 394,418 139,610 86,744
--------- ------- --------- -------
TOTAL UNITED STATES . . . . . . . . . . . . . . . . 1,168,892 603,802 1,571,988 728,786
--------- ------- --------- -------
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Undeveloped Acreage Developed Acreage
------------------- -----------------
Gross Net Gross Net
Acres Acres Acres Acres
----- ----- ----- -----
INTERNATIONAL
Australia . . . . . . . . . . . . . . . . . . . 6,833,430 3,320,600 280,460 52,550
Canada . . . . . . . . . . . . . . . . . . . . . 259,618 156,468 383,447 251,646
China . . . . . . . . . . . . . . . . . . . . . 48,677 16,225 -- --
The Congo . . . . . . . . . . . . . . . . . . . 236,228 47,245 -- --
Egypt . . . . . . . . . . . . . . . . . . . . . 1,927,380 481,845 -- --
Indonesia . . . . . . . . . . . . . . . . . . . 722,290 280,890 -- --
Ivory Coast . . . . . . . . . . . . . . . . . . 269,338 92,485 -- --
---------- --------- --------- ---------
TOTAL INTERNATIONAL . . . . . . . . . . . . . . . . 10,296,961 4,395,758 663,907 304,196
---------- --------- --------- ---------
TOTAL COMPANY . . . . . . . . . . . . . . . . . . . 11,465,853 4,999,560 2,235,895 1,032,982
========== ========= ========= =========
PRODUCTIVE OIL AND GAS WELLS
The number of productive oil and gas wells, operated and non-operated, in
which Apache had an interest as of December 31, 1994, is set forth below.
Gas Oil
----------------- ----------------
Gross Net Gross Net
----- --- ----- ---
Gulf of Mexico . . . . . . . . . . . . . . . . . . . 440 122 40 4
Midcontinent . . . . . . . . . . . . . . . . . . . . 1,580 515 344 139
Permian Basin . . . . . . . . . . . . . . . . . . . . 452 100 2,195 813
Gulf Coast . . . . . . . . . . . . . . . . . . . . . 568 382 1,441 1,034
Rocky Mountain . . . . . . . . . . . . . . . . . . . 232 142 772 420
Canada . . . . . . . . . . . . . . . . . . . . . . . 393 257 882 151
International . . . . . . . . . . . . . . . . . . . . 3 1 27 5
----- ----- ----- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . 3,668 1,519 5,701 2,566
===== ===== ===== =====
GROSS WELLS DRILLED
The following table sets forth the number of gross exploratory and gross
development wells drilled in the last three fiscal years in which the Company
participated. The number of wells drilled refers to the number of wells
commenced at any time during the respective fiscal year. "Productive" wells are
either producing wells or wells capable of commercial production. At December
31, 1994, the Company was participating in 29 wells in the U.S., three Canadian
wells and one international well in the process of drilling.
Exploratory Developmental
----------------------------- -------------------------------
Productive Dry Total Productive Dry Total
---------- --- ----- ---------- --- -----
1994
United States . . . . . . . . . . . . . . . 20 17 37 223 39 262
Canada . . . . . . . . . . . . . . . . . . 18 12 30 35 3 38
International . . . . . . . . . . . . . . . 7 8 15 2 - 2
-- -- -- --- -- ---
Total . . . . . . . . . . . . . . . . . . . 45 37 82 260 42 302
== == == === == ===
1993
United States . . . . . . . . . . . . . . . 12 19 31 198 37 235
Canada . . . . . . . . . . . . . . . . . . 11 15 26 13 1 14
International . . . . . . . . . . . . . . . 3 5 8 - - -
-- -- -- --- -- ---
Total . . . . . . . . . . . . . . . . . . . 26 39 65 211 38 249
== == == === == ===
1992
United States . . . . . . . . . . . . . . . 10 32 42 145 16 161
Canada . . . . . . . . . . . . . . . . . . 3 7 10 11 5 16
International . . . . . . . . . . . . . . . - 6 6 - - -
-- -- -- --- -- ---
Total . . . . . . . . . . . . . . . . . . . 13 45 58 156 21 177
== == == === == ===
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NET WELLS DRILLED
The following table sets forth, for each of the last three fiscal years, the
number of net exploratory and net developmental wells drilled by Apache.
Exploratory Developmental
----------------------------- -------------------------------
Productive Dry Total Productive Dry Total
---------- --- ----- ---------- --- -----
1994
United States . . . . . . . . . . . . . . . 10.7 10.4 21.1 100.1 27.0 127.1
Canada . . . . . . . . . . . . . . . . . . 13.0 7.0 20.0 28.0 2.0 30.0
International . . . . . . . . . . . . . . . 2.3 2.4 4.7 0.4 - 0.4
---- ---- ---- ----- ---- -----
Total . . . . . . . . . . . . . . . . . . . 26.0 19.8 45.8 128.5 29.0 157.5
==== ==== ==== ===== ==== =====
1993
United States . . . . . . . . . . . . . . . 4.2 10.4 14.6 90.4 22.2 112.6
Canada . . . . . . . . . . . . . . . . . . 8.0 11.0 19.0 6.0 1.0 7.0
International . . . . . . . . . . . . . . . 0.6 1.3 1.9 - - -
---- ---- ---- ----- ---- -----
Total . . . . . . . . . . . . . . . . . . . 12.8 22.7 35.5 96.4 23.2 119.6
==== ==== ==== ===== ==== =====
1992
United States . . . . . . . . . . . . . . . 4.2 17.6 21.8 63.1 11.0 74.1
Canada . . . . . . . . . . . . . . . . . . 2.0 3.0 5.0 1.0 2.0 3.0
International . . . . . . . . . . . . . . . - 1.1 1.1 - - -
---- ---- ---- ----- ---- -----
Total . . . . . . . . . . . . . . . . . . . 6.2 21.7 27.9 64.1 13.0 77.1
==== ==== ==== ===== ==== =====
PRODUCTION AND PRICING DATA
The following table describes, for each of the last three fiscal years, oil,
natural gas liquids (NGLs) and gas production for the Company, average
production costs and average sales prices.
Production Average Sales Price
------------------------------- Average ----------------------------------
Year Ended Oil NGLs Gas Production Oil NGLs Gas
December 31, (Mbbls) (Mbbls) (Mmcf) Cost per boe (per bbl) (per bbl) (per Mcf)
------- ------- ------ ------------ --------- --------- ---------
1994 . . . . . . . . . . . . . 13,815 724 176,397 $3.40 $15.65 $11.21 $1.78
1993 . . . . . . . . . . . . . 13,036 733 131,591 3.94 16.74 11.55 1.94
1992 . . . . . . . . . . . . . 13,465 885 119,962 4.20 18.11 11.79 1.66
ESTIMATED RESERVES AND RESERVE VALUE INFORMATION
The following information relating to estimated reserve quantities, reserve
values and discounted future net revenues is derived from, and qualified in its
entirety by reference to, the more complete reserve and revenue information and
assumptions included in the Company's financial statements under Item 8 below.
The Company's estimates of proved reserve quantities of its U.S., Canadian and
certain international properties have been subject to review by Ryder Scott
Company Petroleum Engineers. There are numerous uncertainties inherent in
estimating quantities of proved reserves and projecting future rates of
production and timing of development expenditures. The following reserve
information represents estimates only and should not be construed as being
exact. See the Supplemental Oil and Gas Disclosures under Item 8 below.
12
14
The following table sets forth the Company's estimated proved developed and
undeveloped reserves as of December 31, 1994, 1993 and 1992:
Oil, NGLs and
Natural Gas Condensate
(Bcf) (Mmbbls)
----------- -------------
1994
Developed . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,184.9 100.0
Undeveloped . . . . . . . . . . . . . . . . . . . . . . . . . . 131.3 10.6
------- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,316.2 110.6
======= =====
1993
Developed . . . . . . . . . . . . . . . . . . . . . . . . . . . 983.7 92.6
Undeveloped . . . . . . . . . . . . . . . . . . . . . . . . . . 141.9 10.4
------- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,125.6 103.0
======= =====
1992
Developed . . . . . . . . . . . . . . . . . . . . . . . . . . . 848.7 87.0
Undeveloped . . . . . . . . . . . . . . . . . . . . . . . . . . 70.9 7.6
------- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 919.6 94.6
======= =====
The following table sets forth the estimated future value of all proved
reserves of the Company, and proved developed reserves of the Company, as of
December 31, 1994, 1993 and 1992. Future reserve values are based on year-end
prices except in those instances where the sale of gas and oil is covered by
contract terms providing for determinable escalations. Operating costs,
production and ad valorem taxes, and future development costs are based on
current costs with no escalations.
Present Value of Estimated
Future Net Revenues
Estimated Future Before Income Taxes
Net Revenues (Discounted at 10 Percent)
----------------------------- -----------------------------
Proved Proved
Proved Developed Proved Developed
---------- ---------- --------- ----------
(In thousands)
December 31,
1994 . . . . . . . . . . . . . . . . . . . . . . . $2,581,459 $2,390,126 $1,600,927 $1,512,305
1993 . . . . . . . . . . . . . . . . . . . . . . . 2,591,291 2,289,172 1,626,096 1,450,669
1992 . . . . . . . . . . . . . . . . . . . . . . . 2,211,315 2,041,851 1,272,952 1,195,990
At December 31, 1994, estimated future net revenues expected to be received
from all proved reserves of the Company, and from proved developed reserves of
the Company, were as follows:
Proved
Proved Developed
---------- ----------
(In thousands)
December 31,
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 360,011 $ 388,814
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328,388 308,949
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281,491 254,528
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,611,569 1,437,835
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,581,459 $2,390,126
========== ==========
The Company believes that no major discovery or other favorable or adverse
event has occurred since December 31, 1994, which would cause a significant
change in the estimated proved reserves reported herein. The estimates above are
based on year-end pricing in accordance with the Securities and Exchange
Commission (SEC) guidelines and do not reflect current prices. Since January 1,
1994, no oil or gas reserve information has been filed with, or included in any
report to, any U.S. authority or agency other than the SEC and the Energy
Information Administration (EIA). The basis of reporting reserves to the EIA for
the Company's reserves is identical to that set forth in the foregoing table.
13
15
TITLE TO INTERESTS
The Company believes that its title to the various interests set forth
above is satisfactory and consistent with the standards generally accepted in
the oil and gas industry, subject only to immaterial exceptions which do not
detract substantially from the value of the interests or materially interfere
with their use in the Company's operations. The interests owned by the Company
may be subject to one or more royalty, overriding royalty and other outstanding
interests customary in the industry. The interests may additionally be subject
to burdens such as net profits interests, liens incident to operating agreements
and current taxes, development obligations under oil and gas leases and other
encumbrances, easements and restrictions, none of which detract substantially
from the value of the interests or materially interfere with their use in the
Company's operations.
ITEM 3. LEGAL PROCEEDINGS
The information set forth under the caption "Litigation" in Note 9 to the
Company's financial statements under Item 8 below is incorporated herein by
reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted for a vote of security holders during the fourth
quarter of 1994.
14
16
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Apache's common stock, par value $1.25 per share, is traded on the New
York Stock Exchange and the Chicago Stock Exchange under the symbol APA. The
table below provides certain information regarding Apache common stock for 1994
and 1993. Prices shown are from the New York Stock Exchange Composite
Transactions Reporting System.
1994 1993
--------------------------------- ---------------------------------
Price Range Price Range
----------------- Dividends ----------------- Dividends
High Low per Share High Low per Share
---- --- --------- ---- --- ---------
First Quarter .............. $26 7/8 $22 1/2 $ .07 $26 1/4 $17 5/8 $ .07
Second Quarter ............. 29 22 1/4 $ .07 30 1/4 24 3/8 $ .07
Third Quarter .............. 29 1/4 23 $ .07 33 1/2 26 3/8 $ .07
Fourth Quarter ............. 28 7/8 23 5/8 $ .07 31 1/4 20 3/8 $ .07
The closing price per share of Apache common stock, as reported on the New
York Stock Exchange Composite Transactions Reporting System for February 28,
1995, was $25.00. At December 31, 1994, there were 69,666,092 shares of Apache
common stock outstanding, held by approximately 13,420 shareholders of record
and 33,000 beneficial owners.
Each share of Apache common stock also represents one common stock
purchase right which, under certain circumstances, would entitle the holder to
acquire additional shares of common stock. See Note 6 to the Company's financial
statements under Item 8 below.
The Company has paid cash dividends on its common stock for 112
consecutive quarters through December 31, 1994, and intends to continue the
payment of dividends at current levels, although future dividend payments will
depend upon the Company's level of earnings, financial requirements and other
relevant factors.
15
17
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company and
its consolidated subsidiaries for each of the years in the five-year period
ended December 31, 1994, which information has been derived from the Company's
audited financial statements. Apache's previously reported data for 1994 and
prior years has been restated to reflect the merger with DEKALB under the
pooling of interests method of accounting. This information should be read in
connection with and is qualified in its entirety by the more detailed
information and financial statements under Item 8 below.
At or for the Year Ended December 31,
-----------------------------------------------------------------------------------
1994 1993(a) 1992(b) 1991(c) 1990
----------- ----------- ----------- ----------- -----------
(In thousands, except per share amounts)
INCOME STATEMENT DATA
Total revenues $ 592,626 $ 512,632 $ 517,403 $ 457,872 $ 386,688
Net income (loss) -- continuing
operations 45,583 41,421 (14,632) (35,216) 53,114
Net income (loss) per common
share -- continuing operations .65 .67 (.26) (.65) .99
Cash dividends per common share(d) .28 .28 .28 .28 .28
BALANCE SHEET DATA
Working capital (deficit) $ (3,203) $ (55,538) $ (32,775) $ (57,593) $ 18,358
Total assets 2,036,627 1,759,203 1,774,767 1,597,633 1,363,337
Long-term debt 719,033 504,334 524,098 658,395 386,580
Shareholders' equity 891,087 868,596 554,524 601,181 622,489
Common shares outstanding at
end of year 69,666 69,504 55,361 55,305 53,296
- -----------
(a) Includes financial data for AERC after June 30, 1993, and for Hall-Houston
after July 31, 1993. See Note 1 to the Company's financial statements
under Item 8 below.
(b) The net loss in 1992 resulted from the sale of substantially all of
DEKALB's U.S. assets for a loss of $25.6 million after-tax. DEKALB also
reported Canadian ceiling test write-downs of $15.9 million after-tax
and U.S. ceiling test write-downs of $24.7 million after-tax.
(c) Includes financial data for MW after June 30, 1991. The net loss in 1991
resulted from DEKALB reporting U.S. ceiling test write-downs of $66
million after-tax.
(d) No cash dividends were paid on outstanding DEKALB common stock in 1994,
1993 and 1992. Cash dividends paid on DEKALB common stock totaled $.8
million in 1991 and $2.9 million in 1990.
Reference is made to Item 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," for a discussion of significant
acquisitions and to the Summary of Significant Accounting Policies and Note 1 to
the Company's financial statements under Item 8 below.
16
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
On May 17, 1995, Apache Corporation (Apache or the Company) acquired
DEKALB Energy Company (DEKALB, now known as DEK Energy Company) through a
merger which resulted in DEKALB becoming a wholly-owned subsidiary of Apache.
Pursuant to the merger agreement, Apache issued 8.4 million shares of its
common stock in exchange for outstanding DEKALB stock and DEKALB employee
stock options that remained outstanding at the time of the merger. The merger
was accounted for as a "pooling of interest" for financial accounting
purposes. As a result, the following discussion and analysis for 1994 and
preceding years has been prepared on a combined basis using the pooling method
of accounting.
Apache's financial performance during 1994 is best understood in light of
the following factors:
PRODUCTION INCREASES; COMMODITY PRICES -- The current year's performance
was affected by substantial increases in natural gas production partially offset
by lower average oil and natural gas prices for the year. Apache's natural gas
production increased by 34 percent over the prior year, attributable principally
to developmental drilling, recompletions and acquisitions completed in 1993.
These gains were partially offset as Apache's average realized natural gas price
declined eight percent from the prior year. Apache's oil production increased by
six percent over the prior year. Although oil prices improved from the five-year
low experienced in the fourth quarter of 1993, Apache's average realized oil
price in 1994 was seven percent lower than in 1993.
ACQUISITIONS -- Apache continued to acquire properties in 1994, acquiring
$180.7 million of oil and gas properties in the current year following its
mid-1993 acquisition of Hadson Energy Resources Corporation (now known as Apache
Energy Resources Corporation or AERC) and substantially all of the producing
properties of Hall-Houston Oil Company (Hall-Houston) in the Gulf of Mexico for
an aggregate of $211.7 million. The Company's 1994 performance reflects a full
12 months of ownership of AERC and the Hall-Houston properties; however, over
half of the 1994 acquisitions were booked in the fourth quarter, and did not
have a significant impact on the Company's 1994 performance. Acquisitions which
closed in 1993 and 1994 accounted for approximately 41 percent of the overall
increase in gas production from a year ago.
INCREASE IN AVERAGE COMMON SHARES OUTSTANDING -- The weighted average
number of shares of Apache common stock outstanding in 1994 increased by 7.7
million shares (12 percent) over 1993, primarily as a result of the issuance of
5.8 million shares in connection with a public stock offering in March 1993 and
the issuance of 7.8 million shares in connection with the conversion of $150
million of subordinated debentures in September 1993. Proceeds from these
transactions reduced outstanding debt by $281.8 million.
RESULTS OF OPERATIONS
NET INCOME AND REVENUES
Apache reported net income for the year of $45.6 million, a three-percent
decrease from 1993 earnings of $46.8 million. The Company's 1993 net income
included a one-time benefit of $5.3 million, or $.08 per share, for the
cumulative effects of a change in accounting principle related to the adoption
of the liability method of accounting for income taxes under Statement of
Financial Accounting Standards (SFAS) No. 109. Net income from continuing
operations of $.65 per share was down from 1993, as the increase in 1994 income
from continuing operations of $4.2 million was offset by the increase in the
weighted average number of shares of Apache common stock outstanding.
Significant factors contributing to the higher income from continuing operations
were increased oil production and substantially increased natural gas production
partially offset by decreases in oil and natural gas prices. Volume and price
information concerning the Company's 1994 and 1993 oil and gas production is
summarized in the following table:
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Selected Oil and Gas Increase
Operating Statistics 1994 1993 (Decrease)
- --------------------- -------- -------- ----------
Gas volume - Mcf per day:
United States ..................................... 419,161 299,486 40%
Canada ............................................ 56,142 57,449 (2)%
International ..................................... 7,975 3,589 122%
-------- --------
Total ............................................. 483,278 360,524 34%
======== ========
Average Gas Price - Per Mcf ......................... $ 1.78 $ 1.94 (8)%
Oil volume - Barrels per day:
United States ..................................... 32,669 31,809 3%
Canada ............................................ 2,003 2,033 (1)%
International ..................................... 3,177 1,874 70%
-------- --------
Total ............................................. 37,849 35,716 6%
======== ========
Average Oil Price - Per barrel ...................... $ 15.65 $ 16.74 (7)%
Natural Gas Liquids (NGL) -
Barrels per day: ................................. 1,985 2,008 (1)%
Average NGL Price - Per barrel ...................... $ 11.28 $ 11.55 (2)%
Revenues for 1994 totaled $592.6 million, or 16 percent higher than a year
ago. Oil and gas revenues in 1994 totaled $538.4 million, an increase of 12
percent over production revenues of $481.8 million in 1993. Production revenues
were influenced by record natural gas production, declining natural gas prices,
increased oil production and lower average oil prices for the year. In addition,
Apache's gathering, processing and marketing revenues increased 71 percent to
$44.3 million in 1994 from $25.9 million in 1993. Revenues from international
operations increased 18 percent to $72.6 million with a full twelve months of
Australian production from the AERC acquisition.
Natural gas sales contributed $314 million to revenues, up 23 percent from
1993, the result of higher annual production partially offset by lower prices
during 1994. Gas production for the year averaged 483 MMcf per day, up 34
percent from 1993, positively affecting gas sales by $87 million. This increase
is principally the result of production increases from developmental drilling
and the contribution from 12 months of operations from properties acquired in
1993, the most significant of which were the offshore properties acquired from
Hall-Houston and the properties acquired in the merger with AERC. Acquisitions
added approximately 50 MMcfd of production increases for the year, whereas
developmental drilling and recompletions accounted for nearly 73 MMcfd.
Apache's average realized price for its natural gas was $1.78 per Mcf
during 1994, eight percent lower than the average price of $1.94 per Mcf during
1993, which negatively affected gas sales by $28.2 million. During 1994,
Apache's average realized gas prices ranged from $1.48 per Mcf in October to
$2.11 per Mcf in February. Gas prices remained depressed during the second half
of 1994 due to warmer than usual weather in the northeastern United States and
higher volumes of gas held in inventory by utilities and gas storage facilities.
Hedging activities increased Apache's 1994 gas price by $.02 per Mcf ($3.0
million in sales) compared to $.04 per Mcf decrease ($5.4 million in sales) in
1993. The 1994 hedging was in the form of floating for fixed price swap
agreements, with hedged volumes ranging from 10,000 MMBtud to 40,000 MMBtud.
Hedging activities in 1993 included a $3.8 million net loss from swap agreements
and a $1.6 million payment to Amoco Production Company (Amoco) under the terms
of the price support hedging agreement described in Footnote 8 to the Company's
financial statements. With natural gas spot prices rising significantly during
the second and third quarters of 1993, the 1993 hedging activities in effect
mitigated the upside potential of improving prices.
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The impact of increased oil production was offset by lower oil prices in
1994. Oil production contributed $216.2 million to revenues during 1994, less
than one percent below Apache's oil sales in 1993. Average daily oil production
of approximately 37.9 Mbbls of oil increased six percent over the prior year,
positively affecting oil sales by $13 million, as acquisitions offset the
effects of natural depletion. Oil sales represented 40 percent of total oil and
gas sales in 1994 compared to 45 percent of total oil and gas sales in 1993.
The Company's average realized oil price of $15.65 per barrel declined
seven percent from 1993, negatively affecting oil sales by $15 million. Apache's
average realized oil prices in 1994 ranged from $12.64 per barrel in March to
$17.84 per barrel in July. Hedging activities increased Apache's average
realized oil price by $.20 per barrel ($2.7 million in sales) as compared to a
$.37 per barrel increase ($4.8 million in sales) in 1993. The 1994 hedges were
in the form of floating for fixed price swap agreements with respect to the sale
of oil, whereas 1993 sales hedges were due to the price support hedging
agreement with Amoco.
Revenues from the sale of natural gas liquids decreased four percent from
1993, to $8.2 million in 1994.
Revenues from gas gathering, processing and marketing were $44.3 million
in 1994, up 71 percent from 1993. The revenue increase primarily reflects
additional volumes sold under crude oil and natural gas contracts, an activity
that generally creates relatively low margins. Gross margins from gathering,
processing and marketing were $6.4 million in 1994, an increase of 32 percent
from 1993.
Other revenues increased to $9.5 million in 1994, up from $4.3 million in
1993. Non-recurring revenues in 1994 included $4 million from the favorable
resolution of take-or-pay contract issues and $2.2 million in gains from the
sale of stock held for investment.
COSTS AND EXPENSES
Operating costs per equivalent unit of production declined 14 percent in
1994, as a 23-percent increase in production volumes more than offset a
six-percent increase in operating costs. Aggregate operating costs increased
from $140.6 million in 1993 to $149.5 million in 1994. Operating costs include
lifting costs, workover expense, and applicable U.S. or foreign production
taxes. On an equivalent unit of production basis, operating costs in 1994
declined to $3.40 per boe, down from $3.94 per boe in 1993. Apache's declining
costs per boe reflect increasing natural gas production and lower production
costs associated with the operation of gas-bearing properties as compared with
oil-bearing properties. The decline in unit cost reflects the Company's
continued cost saving efforts and the addition of offshore properties which are
not subject to production taxes and traditionally have lower unit lifting costs.
Depreciation, depletion and amortization (DD&A) expense rose 30 percent
year-over-year to $257.8 million due to increased oil and natural gas production
and a higher U.S. amortization rate expressed on a boe basis. Apache's U.S.
amortization rate increased from $5.61 per boe in 1993 to $5.88 per boe in 1994
due to higher finding costs during the last two years. Recurring international
DD&A expense increased as higher Australian production more than offset the
impact of lower Canadian production.
Although Apache increased its international exploration activity in 1994,
international impairments declined to $7.3 million in 1994 from $23.2 million in
1993, reflecting the Company's successful international exploration efforts in
China, Egypt, The Congo and Indonesia during 1994.
Administrative, selling and other costs increased $2.1 million in 1994, or
six percent from 1993. Administrative, selling and other costs, on an equivalent
unit of production basis, declined 15 percent from the prior year to $.88 per
boe in 1994 from $1.03 per boe in 1993, reflecting the increase in production
over the prior year and results of the Company's sustained efforts to contain
costs. The Company integrated AERC and the Hall-Houston properties with minimal
increases in administrative staff.
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Net financing costs of $34.7 million were 13 percent higher than 1993.
This was primarily as a result of increasing interest rates and increased debt
in 1994 related to the AERC and Hall-Houston acquisitions which were funded in
the second half of 1993. By year end, effective interest rates on Apache's
floating rate debt, which includes all advances under its bank credit facility,
increased approximately 59 percent over year-end 1993, as market rates increased
at six different times during the year. Apache's average effective interest rate
during 1994 increased to 6.88 percent from 5.46 percent during 1993. On an
equivalent unit of production basis, net financing costs declined to $.79 per
boe in 1994 from $.86 per boe in 1993, as increased production offset the rising
cost of financing. On December 31, 1994, Apache's outstanding debt balance was
$719 million, an increase of 39 percent from $519 million on December 31, 1993.
PRIOR-YEAR COMPARATIVE INFORMATION
The Company reported net income of $46.8 million, or $.75 per share, in
1993 compared to a loss of $15.7 million, or $.28 per share, in 1992. The 1992
results were driven by a $34.9 million pre-tax loss on the disposal of
substantially all of DEKALB's U.S. assets and impairments on oil and gas
properties which totaled $65.3 million. These losses were partially offset by a
$30.3 million pre-tax gain on the sale of the Company's interest in Natural Gas
Clearinghouse (NGC).
Volume and price information concerning the Company's 1993 and 1992 oil
and gas production is summarized in the following table:
Selected Oil and Gas Increase
Operating Statistics 1993 1992 (Decrease)
- -------------------- -------- -------- ----------
Gas volume - Mcf per day:
United States ...................................... 299,486 280,473 7%
Canada ............................................. 57,449 47,292 21%
International ...................................... 3,589 -- --
-------- --------
Total .............................................. 360,524 327,765 10%
======== ========
Average Gas Price - Per Mcf .......................... $ 1.94 $ 1.66 17%
Oil volume - Barrels per day:
United States ...................................... 31,809 33,604 (5)%
Canada ............................................. 2,033 2,120 (4)%
International ...................................... 1,874 1,066 76%
-------- --------
Total .............................................. 35,716 36,790 (3)%
======== ========
Average Oil Price - Per Barrel ....................... $ 16.74 $ 18.11 (8)%
Natural Gas Liquids (NGL) -
Barrels per day .................................... 2,008 2,420 (17)%
Average NGL Price - Per barrel ....................... $ 11.55 $ 11.79 (2)%
Revenues for 1993 totaled $512.6 million, a one-percent decrease from the
Company's 1992 revenues, which included a $30.3 million gain from the sale of
the Company's interest in NGC. Production revenues in 1993 totaled $481.8
million compared to $453.8 million in 1992. Oil and gas revenues were influenced
by improved gas prices over 1992, declining second-half oil prices, and the
acquisition of AERC and the Hall-Houston properties in the second half of the
year. Revenues from international operations increased 34 percent in 1993, to
$61.4 million, with six months of Australian production from the 1993 AERC
acquisition.
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22
Natural gas sales in 1993 contributed $255 million to revenues, up 28
percent from 1992, the result of sustained higher prices and higher production
during 1993. Apache's average realized price for 1993 was $1.94 per Mcf, up 17
percent over the 1992 average of $1.66 per Mcf, positively affecting 1993 gas
sales by $36.4 million. Hedging activities decreased gas sales by $5.4 million
($.04 per Mcf) in 1993 as compared to a $2.5 million decrease in 1992. Both
years included losses on swap agreements and price sharing obligations with
Amoco.
The impact of higher gas prices was augmented by higher gas production in
1993 as compared with 1992. Gas production for the year averaged 360.5 MMcf per
day, up 10 percent from 1992, positively affecting gas sales by $19.3 million.
This increase is principally the result of production from newly acquired
properties, the most significant of which were the offshore properties acquired
from Hall-Houston, the additional 93-percent working interest in Matagorda
Island Blocks 681 and 682 acquired in 1992, and the properties acquired in the
merger with AERC. Combined, these three acquisitions comprised 332 Bcfe of
proved reserves at year end 1993 and contributed 68 MMcf of gas per day to
Apache's 1993 average daily production.
Oil production in 1993 declined due to the sale by DEKALB of substantially
all of its U.S. properties. Oil revenues were further reduced by lower oil
prices. Oil production contributed $218.2 million to revenues during 1993,
eleven percent below Apache's record $243.9 million in oil sales in 1992.
Average daily oil production of approximately 35.7 Mbbls of oil decreased three
percent from the prior year, negatively affecting oil sales by $7.8 million.
The Company's average realized oil price of $16.74 per barrel declined
eight percent from 1992, negatively affecting oil sales by $17.9 million.
Hedging activities boosted Apache's average realized oil price in 1993 by $.37
per barrel ($4.8 million in sales), as compared to a $.34 per barrel increase
($4.7 million in sales) in 1992, due to Amoco price support hedging activities.
Revenues from the sale of natural gas liquids and sulfur in 1993 declined
19 percent from 1992 to $8.5 million, a result of lower prices for natural gas
liquids and the sale of the Whitney Canyon gas processing plant in 1992. The
sale of natural gas liquids declined from 2.4 Mbbls per day in 1992 to 2.0 Mbbls
per day in 1993.
Revenues from gas gathering, processing and marketing were $25.9 million
in 1993, down 10 percent from 1992. The decline primarily reflects the sale of
Apache's interest in a gas gathering system in western Oklahoma in March 1993.
As a result, gross margins from gathering, processing and marketing were $4.9
million in 1993, a decline of 32 percent from 1992.
Operating costs were down two percent in 1993 to $140.6 million due to a
decline in operating costs per barrel of oil equivalent. Operating costs include
lifting costs, workover expense, and applicable domestic or foreign production
taxes. On an equivalent unit of production basis, operating costs declined six
percent in 1993 to $3.94 per boe, down from $4.20 per boe in 1992. Apache's
declining costs per boe reflect increasing natural gas production and lower
production costs associated with operating gas-bearing properties as compared to
oil-bearing properties. Apache's operating costs were also reduced by refunds of
well-control insurance totaling $.7 million and production tax refunds totaling
$1.8 million during 1993.
DD&A expense rose ten percent year-over-year to $198.3 million due to
increased production. Apache's domestic amortization per boe was up slightly in
1993 to $5.61 from $5.30 per boe in 1992.
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International impairments, including Canada, declined to $23.2 million
in 1993 from $40.6 million in 1992. The 1993 impairments included $6.7 million
of the Company's investment in West Africa which the Company wrote-off in the
third quarter of 1993 when it recognized a reduced probability of establishing
commercial operations on two of Apache's concessions, and provisions for
Apache's investment in the Java Sea (Indonesia) and Nanteau (France). In 1992,
the Company recorded a $28.6 million write down of its Canadian properties
and $12 million in impairments on international prospects with no oil and gas
production.
Administrative, selling and other costs were down 10 percent from those
incurred in 1992, despite the Company's acquisitions during 1993. The reduction
reflects the Company's sustained efforts to contain costs, the non-recurring
administrative costs incurred in the 1992 corporate relocation to Houston, and
the integration of MW. In 1993, Apache successfully assimilated the AERC and
Hall-Houston properties with minimal additions to its administrative staff.
Administrative cost reductions were partially offset, however, by expenses
associated with an employee benefit plan based on Apache common stock, which
increased in price by approximately 25 percent from year-end 1992 to year-end
1993.
Net financing costs declined 22 percent in 1993, despite the use of bank
debt to fund the AERC acquisition and Hall-Houston transaction. The decline is
primarily attributable to a decline of approximately 152 basis points in
Apache's effective interest in 1993 as compared with 1992, reflecting a general
decline in interest rates and the conversion of Apache's 7 1/2-percent
convertible subordinated debentures due 2000 into shares of Apache common stock
in September 1993. Interest expense also declined as a result of Apache's
repayment of bank debt from a portion of the $131.8 million in net proceeds of
its public offering of common stock in March 1993, the successful conversion of
approximately $150 million of its 7 1/2-percent convertible subordinated
debentures due 2000 and through the redemption of $7 million of 9-percent
convertible subordinated debentures due 2001. Debt reductions attributable to
the public offering and debt conversion in 1993 were offset by debt incurred in
connection with acquisitions. On December 31, 1993, Apache's outstanding debt
balance was $519 million, a decrease of one percent from $525.6 million on
December 31, 1992.
CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES
CAPITAL COMMITMENTS
Apache's primary needs for cash are for exploration, development and
acquisition of oil and gas properties, repayment of principal and interest on
outstanding debt, and payment of dividends. The Company generally funds its
exploration and development activities through internally generated cash flows.
Apache budgets its capital expenditures based upon projected cash flows and
routinely adjusts its capital expenditures in response to changes in oil and gas
prices and corresponding changes in cash flow.
Expenditures for exploration and development increased to $336.7 million
in 1994 from $235.1 million in 1993. In the U.S., Apache completed 243 producing
wells out of 299 gross wells drilled during the year compared with 266 gross
wells drilled in 1993, of which 210 were completed as producers.
Internationally, the Company had discoveries on 62 of 85 wells drilled in 1994,
while completing 27 of 48 wells as producers in 1993. In 1994, the international
completions included 45 gas wells in the Canadian Province of Alberta and 9 oil
wells in the Province of British Columbia. U.S. expenditures for exploration and
development in 1995, including workover and recompletion operations, are
expected to decline to approximately $160 million as additional funds are used
to reduce debt. The Company expects its international exploration and
development expenditures in 1995 will total approximately $65 million, of which
a larger share will be incurred outside of Canada.
Cash expenditures for acquisitions during 1994 were $180.7 million,
compared to $262.9 million in 1993. The most significant acquisition that Apache
closed during 1994 was the purchase of substantially all of the U.S. oil and gas
properties of Crystal Oil Company (Crystal) for $95.8 million. Apache also
acquired approximately $84.9 million of other oil and gas properties through a
number of different transactions during 1994. Funds for the 1994 acquisitions
were obtained principally from borrowings under the Company's revolving bank
credit facility.
22
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On March 1, 1995, Apache purchased certain U.S. oil and gas properties
from Texaco Exploration and Production Inc. (Texaco) for approximately $571
million in cash, subject to adjustment. Apache delivered a $25 million deposit,
representing a portion of the purchase price, upon execution of the purchase and
sale agreement with Texaco in December 1994, and delivered the balance in cash
at closing. Funds for the Texaco transaction were obtained from several sources,
including increased borrowing capacity under the Company's bank credit facility
and proceeds of Apache's $172.5 million 6-percent Convertible Subordinated
Debentures due 2002 (6-percent debentures), which were issued on January 4,
1995. On March 1, 1995, lenders increased the Apache revolving credit facility
to $1 billion, subject to borrowing base availability.
Information concerning Apache's acquisition of DEKALB is set forth above
under the heading "Overview".
The Company aggressively pursues acquisition opportunities as part of its
reserve growth strategy. The amount and timing of future funding requirements
for acquisitions are dependent upon several factors, including the market for
oil and gas properties, and cannot be predicted for the upcoming year.
The aggregate cost of acquisitions in 1993, including the value of the
shares issued and liabilities added through the acquisition of AERC, totaled
$326.7 million. Apache's most significant transactions during 1993 were its
acquisitions of oil and gas properties from Hall-Houston for $113.7 million in
cash and the acquisition of AERC for approximately $98 million in cash and the
issuance of 307,977 shares of Apache common stock. Apache also acquired more
than $78.6 million of other properties during 1993, primarily representing
purchases of additional working interests in properties in which Apache already
held an interest, including the purchase of Key Production Company's interest in
certain properties held by APC Operating Partnership L.P. prior to that
partnership's dissolution during the first quarter of 1993.
Other capital expenditures for 1993 include the purchase of NGC's interest
in a gas gathering system in western Oklahoma which was sold in March 1993, in a
transaction described under "Capital Resources and Liquidity" below.
At December 31, 1994, Apache had outstanding $454 million under its
revolving bank credit facility, $25.8 million in additional bank debt
consolidated through the AEL banker's acceptance facility and an aggregate of
$239.2 million in principal amount of other long-term debt, comprised
principally of notes and debentures maturing in the years 1997 through 2002. The
Company's overall debt at December 31, 1994 had increased $200.1 million from
December 31, 1993, partly the result of borrowing to fund acquisitions and the
purchase of approximately $15 million of AERC shares tendered to the Company in
the first quarter of 1994. Apache made cash payments on long-term debt totaling
$38 million in 1994, of which $14.7 million was scheduled under the Company's
debt obligations and $19.6 million was paid due to the termination of AERC's
bank credit facility. Interest payments on the Company's outstanding debt
obligations during 1995 are projected (using weighted average balances for
floating rate obligations) to be approximately $89 million, while scheduled
principal payments for 1995 currently total $.1 million.
Dividends paid during 1994 totaled $17.1 million, up 15 percent from 1993,
primarily due to the issuance of approximately 5.8 million shares of the
Company's common stock in connection with the March 1993 common stock offering,
and the issuance of approximately 7.8 million shares in September 1993 upon the
conversion of Apache's subordinated debentures. The Company's dividend policy
currently provides for the payment of regular quarterly dividends at the rate of
$.28 per share annually. Although no change in the dividend policy is
contemplated for 1995, the declaration and amount of future dividends is
dependent upon the Company's cash requirements, applicable debt covenants and
other factors deemed relevant by the Board of Directors.
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25
CAPITAL RESOURCES AND LIQUIDITY
The Company's primary capital resources are net cash provided by operating
activities, proceeds from financing activities and proceeds from sales of
non-strategic assets.
Net cash provided by operating activities during 1994 was $357.8 million,
up $101.8 million from 1993. The 40-percent improvement in cash flows primarily
reflects increased natural gas production and a $67.4 million advance on future
gas deliveries related to the Company's sale of approximately 43.8 Bcf of
natural gas for delivery over a six-year period. (See Note 5 to the Company's
financial statements). Eliminating the effects of forward sale transactions, net
cash provided by operating activities increased by 14 percent over 1993,
reflecting the results of increased production partially offset by lower oil and
gas prices.
The Company anticipates that it will engage in additional forward sale
transactions in the future if sales can be made under terms and conditions that
are favorable to the Company in light of market conditions. Future cash flows
will be influenced by product prices and production volumes and are not
presently ascertainable.
On January 4, 1995, Apache completed the issuance of $172.5 million
principal amount of its 6-percent debentures to reduce bank debt, provide
funding for acquisitions and general corporate purposes. The debentures are
convertible at the option of the holder into Apache common stock at a conversion
price of $30.68 per share.
On March 1, 1995, in connection with the acquisition of certain oil and
gas properties from Texaco, lenders increased the size of Apache's revolving
credit facility from $700 million to $1 billion, subject to borrowing base
availability. The borrowing base is the estimated loan value of the Company's
oil and gas reserves, not including reserves outside the United States and
subject to certain other exclusions, based upon forecast rates of production, as
periodically redetermined by the lenders. Upon closing the Texaco transaction on
March 1, 1995, Apache had approximately $840 million in loans outstanding under
the facility with approximately $60 million remaining available. (See Note 3 to
the Company's financial statements.)
Under terms of the credit agreement, as amended March 1, 1995, the Company
must (i) maintain a minimum tangible net worth of $650 million, which is
adjusted quarterly for subsequent earnings and securities transactions, and (ii)
maintain a ratio (A) earnings before interest, taxes, depreciation, depletion
and amortization to (B) consolidated interest expense, of not less than 3.7:1.
Restrictive covenants under the facility include certain limitations on
indebtedness and contingent obligations, as well as certain restrictions on
liens and investments in international subsidiaries. The Company has complied
with its financial ratios and restrictive covenants at all times since the
inception of the revolving credit facility in July 1991. The facility matures on
March 1, 2000, and may be extended in one-year increments with the lenders'
consent.
In May 1994, Apache terminated AERC's bank credit facility and converted
the banker's acceptance facility of Apache Energy Limited (AEL), a wholly-owned
Australian subsidiary of AERC, from a reducing term credit facility to a
revolving credit facility with a commitment of $30 million, subject to financial
covenants and borrowing base availability. The AEL facility provides for
advances discounted at a varying rate over the discount rate prevailing in the
Canadian banker's acceptance market. Under the terms of AEL's revolving credit
facility, AEL must maintain certain minimum financial ratios, including a
current ratio (including funds available under the AEL credit facility) of 1.0
to 1.0, a ratio of consolidated cash flow to debt service of 1.1 to 1.0, and a
ratio of consolidated cash flow to consolidated interest expense of 3.0 to 1.0.
In addition, AEL must maintain a minimum tangible net worth of $30 million,
which is adjusted quarterly for subsequent earnings, and satisfy restrictive
covenants similar to those under Apache's revolving credit facility. At year
end, the borrowing base was $30 million of which $25.8 million was outstanding,
and AEL was in compliance with the financial ratios and restrictive covenants
under the facility. Apache and its subsidiaries (other than AEL and its
subsidiaries) have not guaranteed the AEL credit facility.
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26
In March 1993, Apache and NGC completed the sale of their respective
interests in a gathering system located in western Oklahoma. Apache received
gross cash proceeds of approximately $32.2 million in the transaction, of which
$16.4 million was attributable to NGC's interest in the system.
Also in March 1993, Apache completed the public offering of approximately
5.8 million shares of Apache common stock for net proceeds of $131.8 million.
Net proceeds of the offering were used to repay outstanding debt under Apache's
revolving bank credit facility. In September 1993, Apache completed the
conversion of its 7 1/2-percent convertible subordinated debentures due 2000,
resulting in the issuance of approximately 7.8 million shares of Apache common
stock. Primarily as a result of the conversion and Apache's March 1993 equity
offering, Apache's debt as a percentage of capital declined to 37 percent at
December 31, 1993.
In October, 1992, DEKALB sold substantially all of its U.S. oil and gas
properties for approximately $104 million. Pursuant to the terms of the sale,
the purchaser assumed certain liabilities related to the properties. As a result
of the property disposition, DEKALB recorded a pre-tax loss of $34.9 million
in 1992.
In May 1992, Apache issued 9.25-percent notes due 2002 in the principal
amount of $100 million. Proceeds from the offering were used to reduce bank
debt, pay off its 9 1/2-percent convertible debentures due 1996 and for general
corporate purposes. In December 1992, the Company privately placed 3.93-percent
convertible notes due 1997 in the principal amount of $75 million. The
3.93-percent notes are not redeemable before maturity and are convertible into
Apache common stock at the option of the holders at any time prior to maturity
at a conversion price of $27.00 per share. Proceeds from the sale of the
3.93-percent notes were used to repay bank debt.
The Company had $30 million in cash and cash equivalents on hand at
December 31, 1994, down from $39.7 million at the end of 1993. The Company's
ratio of current assets to current liabilities at year end of .98:1 improved
from a ratio of .7:1 at year-end 1993.
Management believes that cash on hand at year end, net cash generated from
operations, proceeds from the sale of the 6-percent debentures, and increased
borrowing capacity under its revolving bank credit facility will be adequate to
satisfy the Company's financial obligations, including its purchase obligation
with respect to the Texaco transaction (see "Capital Commitments"), and to meet
future liquidity needs for at least the next two fiscal years.
FUTURE TRENDS
The closing of the Texaco transaction marks the completion of a major
acquisition cycle which will be followed by property consolidation and
rationalization. Apache is committed to reducing its debt to capitalization
ratio through the selective disposition of marginal and non-strategic properties
and through property development focused on cash flow and debt reduction. In
that regard, Apache announced on February 15, 1995, the Company's plan to sell
substantially all of the oil and gas properties in its Rocky Mountain region
and non-strategic assets in other operating regions, and to close its Denver,
Colorado office. While total capital expenditures will be higher in 1995 due
to the Texaco transaction, U.S. exploration and development costs will be
reduced from their 1994 levels as a result of low product prices and the
commitment to reduce debt. Property dispositions and reduced domestic
exploration outlays in 1995 will likely result in lower production and reserves
from the level achieved upon completion of the Texaco transaction. The following
factors may also impact Apache's operating results and financial condition in
the future.
CONTINUING VOLATILITY OF PRODUCT PRICES
In 1994, spot market natural gas prices remained volatile and continued to
behave unpredictably. Spot market oil prices, which are especially vulnerable to
complex and unpredictable political and economic forces, also remained volatile
in 1994, as Apache's average realized price fluctuated from $12.64 per barrel in
March to $ 17.84 per barrel in July. Management believes that, absent a
comprehensive U.S. energy policy, oil prices will continue to fluctuate in
response to changes in the policies of the Organization of Petroleum Exporting
Countries (OPEC), events in the Middle
25
27
East and events in certain non-OPEC countries. Management also believes that gas
prices will remain volatile and may fluctuate due to supply and demand
perceptions.
MARKETING AND HEDGING
In August 1994, Apache named a vice president of marketing, a newly
created position, to oversee the marketing and sale of the Company's gas
production. The Company expects to take a more active role in the marketing of
Apache's production in 1995.
Also during 1994, Apache undertook a comprehensive review of its risk
management policies and procedures, with emphasis on commodity hedging. At
December 31, 1994, Apache had eight open swap agreements hedging a total of
30,000 MMBtud of natural gas and 400 bopd of crude oil. (See Note 8 to the
Company's financial statements.) The Company is likely to increase the use of
commodity derivatives contracts to either fix or support oil and gas prices at
targeted levels, or to minimize the impact of price fluctuations.
CEILING TEST FOR FULL COST COMPANIES
Oil and gas producers that conduct their financial reporting under the
full cost accounting rules are subject to Securities and Exchange Commission
(SEC) rules that require quarterly "ceiling test" calculations. This test
requires a write-down when the capitalized cost of oil and gas properties
exceeds the present value of proved reserves, plus the lower of cost or market
value for unproved properties. (See Supplemental Oil and Gas Disclosures to the
Company's financial statements). The test is applied at the end of each fiscal
quarter on a country-by-country basis, and requires a write-down if the
"ceiling" is exceeded, even if prices decline only for a short period of time.
Many full cost companies, including Apache, are concerned about the impact of
prolonged unfavorable gas prices on their ceiling test calculations. A further
deterioration of gas or oil prices from year-end levels could result in the
Company recording a non-cash charge to earnings related to its oil and gas
properties in 1995. SEC rules permit the exclusion of capitalized costs and
present value of recently acquired properties in performing ceiling test
calculations. Pursuant to these rules, Apache has requested waivers and the SEC
has granted one-year waivers with respect to the properties acquired from Texaco
and Crystal. If the ceiling is exceeded on all U.S. properties, Apache will be
required to perform an additional ceiling test excluding the Texaco and Crystal
properties and record a write-down of carrying value if the ceiling is still
exceeded.
ENVIRONMENTAL REGULATION
The Company operates under numerous state and federal laws regulating the
discharge of materials into, and the protection of, the environment. In the
ordinary course of business, Apache conducts an ongoing review of the effects of
these various environmental laws on its business and operations. The estimated
cost of continued compliance with current environmental laws, based upon the
information currently available, is not material to the Company's financial
position or results of operations. It is impossible to determine whether and to
what extent Apache's future performance may be affected by environmental laws;
however, management does not believe that such laws will have a material adverse
effect on the Company's financial position or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial information required
to be filed under this item are presented on pages F-1 through F-34 of this Form
10-K, and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
26
28
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the captions "Information About Nominees
for Election as Directors," "Continuing Directors," "Executive Officers of the
Company," and "Voting Securities and Principal Holders" in the Company's proxy
statement relating to the Company's 1995 annual meeting of shareholders (the
"Proxy Statement") is incorporated herein by reference.
The information set forth under Item 10 in DEKALB's Annual Report on Form
10-K for the year ended December 31, 1994, SEC File No. 0-2886, is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the captions "Summary Compensation Table,"
"Option/SAR Grants Table," "Option/SAR Exercises and Year-End Value Table,"
"Employment Contracts and Termination of Employment and Change-in-Control
Arrangements," and "Director Compensation" in the Proxy Statement is
incorporated herein by reference.
The information set forth under Item 11 in DEKALB's Annual Report on Form
10-K for the year ended December 31, 1994, SEC File No. 0-2886, is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Voting Securities and
Principal Holders" in the Proxy Statement is incorporated herein by reference.
The information set forth under Item 12 in DEKALB's Annual Report on Form
10-K for the year ended December 31, 1994, SEC File No. 0-2886, is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Business
Relationships and Transactions" in the Proxy Statement is incorporated herein by
reference.
The information set forth under Items 11 and 13 in DEKALB's Annual Report
on Form 10-K for the year ended December 31, 1994, SEC File No. 0-2886, is
incorporated herein by reference.
27
29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) DOCUMENTS INCLUDED IN THIS REPORT:
1. FINANCIAL STATEMENTS
Report of independent public accountants ....................... F-1
Auditors' report ............................................... F-2
Report of management ........................................... F-3
Statement of consolidated operations for each of the three
years in the period ended December 31, 1994 .................. F-4
Statement of consolidated cash flows for each of the three
years in the period ended December 31, 1994 .................. F-5
Consolidated balance sheet as of December 31, 1994 and 1993 .... F-6
Statement of consolidated shareholders' equity for each of the
three years in the period ended December 31, 1994 ............ F-8
Summary of significant accounting policies ..................... F-9
Notes to consolidated financial statements ..................... F-11
Supplemental oil and gas disclosures ........................... F-26
Supplemental quarterly financial data .......................... F-32
2. FINANCIAL STATEMENT SCHEDULES
Financial statement schedules have been omitted because they are either
not required, not applicable or the information required to be
presented is included in the Company's financial statements and related
notes.
28
30
3. EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 -- Stock Purchase Agreement, dated July 1, 1991, between
Registrant and Amoco Production Company (incorporated
by reference to Exhibit 10.1 to Registrant's Current
Report on Form 8-K, dated July 1, 1991, SEC File No.
1-4300, filed July 19, 1991).
2.2 -- Purchase and Sale Agreement between Hall-Houston Oil
Company, as seller, and Registrant, as buyer, dated as
of June 2, 1993 (incorporated by reference to Exhibit
10.1 to Registrant's Current Report on Form 8-K, dated
August 31, 1993, SEC File No. 1-4300, filed September
7, 1993).
2.3 -- Purchase and Sale Agreement between Hall-Houston Oil
Company, as seller, and Registrant, as buyer, dated as
of August 13, 1993 (incorporated by reference to
Exhibit 10.2 to Registrant's Current Report on Form
8-K, dated August 31, 1993, SEC File No. 1-4300, filed
September 7, 1993).
2.4 -- Form of Acquisition Agreement between Registrant, HERC
Acquisition Corporation and Hadson Energy Resources
Corporation, dated August 26, 1993, and amended
September 28, 1993 (incorporated by reference to
Exhibit 2.1 to Registrant's Registration Statement on
Form S-4, Registration No. 33-67954, filed September
29, 1993).
2.5 -- Purchase and Sale Agreement by and between Texaco
Exploration and Production Inc., as seller, and
Registrant, as buyer, dated December 22, 1994
(incorporated by reference to Exhibit 99.3 to
Registrant's Current Report on Form 8-K, dated November
29, 1994, SEC File No. 1-4300, filed December 29,
1994).
2.6 -- Amended and Restated Agreement and Plan of Merger among
Registrant, XPX Acquisitions, Inc. and DEKALB Energy
Company, dated December 21, 1994 (incorporated by
reference to Exhibit 2.1 to Amendment No. 3 to
Registrant's Registration Statement on Form S-4,
Registration No. 33-57321, filed April 14, 1995).
2.7 -- Matagorda Island 681 Field Purchase and Sale Agreement
with Option to Exchange, dated November 24, 1992,
between Shell Offshore Inc., SOI Royalties Inc., and
Registrant (incorporated by reference to Exhibit 10.7
to Apache Offshore Investment Partnership's Annual
Report on Form 10-K for year ended December 31, 1992,
SEC File No. 0-13546).
3.1 -- Restated Certificate of Incorporation of Registrant,
dated December 1, 1993, as filed with the Secretary of
State of Delaware on December 16, 1993 (incorporated by
reference to Exhibit 3.1 to Registrant's Annual Report
on Form 10-K for year ended December 31, 1993, SEC File
No. 1-4300).
3.2 -- Bylaws of Registrant, dated as of December 9, 1992
(incorporated by reference to Exhibit 3.3 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1992, SEC File No. 1-4300).
4.1 -- Form of common stock certificate (incorporated by
reference to Exhibit 4.4 to Amendment No. 1 to
Registrant's Registration Statement on Form S-3,
Registration No. 33-5097, filed May 16, 1986).
29
31
EXHIBIT NO. DESCRIPTION
----------- -----------
4.2 -- Rights Agreement, dated as of January 10, 1986, between
Registrant and First Trust Company, Inc., rights agent,
relating to the declaration of Rights to Registrant's
common stockholders of record on January 24, 1986
(incorporated by reference to Exhibit 4.9 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1985, SEC File No. 1-4300).
10.1 -- Second Amended and Restated Credit Agreement, dated
April 30, 1994, among Registrant, the lenders named
therein, and The First National Bank of Chicago and
Chemical Bank, as agents (incorporated by reference to
Exhibit 10.1 to Registrant's Quarterly Report on Form
10-Q for quarter ended June 30, 1994, SEC File No.
1-4300).
10.2 -- Third Amended and Restated Credit Agreement, dated
March 1, 1995, among Registrant, the lenders named
therein, and The First National Bank of Chicago, as
Administrative Agent and Arranger, and Chemical Bank,
as Co-Agent and Arranger (incorporated by reference to
Exhibit 10.2 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1994, SEC File No. 1-4300).
10.3 -- Fiscal Agency Agreement, dated as of January 4, 1995,
between Registrant and Chemical Bank, as fiscal agent
(incorporated by reference to Exhibit 99.2 to
Registrant's Current Report on Form 8-K, dated December
6, 1994, SEC File No. 1-4300, filed January 11, 1995.)
+10.4 -- 1982 Employee Stock Option Plan, as updated in January
1987 to conform to the Tax Reform Act of 1986
(incorporated by reference to Exhibit 10.7 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1990, SEC File No. 1-4300).
+10.5 -- Apache Corporation Corporate Administrative Group
Incentive Plan, effective as of January 1, 1989
(incorporated by reference to Exhibit 10.8 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1990, SEC File No. 1-4300).
+10.6 -- First Amendment to Apache Corporation Corporate
Administrative Group Incentive Plan, effective January
1, 1990 (incorporated by reference to Exhibit 10.14 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1993, SEC File No. 1-4300).
+10.7 -- Apache Corporation Retirement/401(k) Savings Plan,
dated December 22, 1994, effective January 1, 1995
(incorporated by reference to Exhibit 10.7 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1994, SEC File No 1-4300).
+10.8 -- Non-Qualified Retirement/Savings Plan of Apache
Corporation, dated November 16, 1989 (incorporated by
reference to Exhibit 10.11 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1989,
SEC File No. 1-4300).
+10.9 -- Apache International, Inc. Common Stock Award Plan,
dated February 12, 1990 (incorporated by reference to
Exhibit 10.13 to Registrant's Annual Report on Form
10-K for year ended December 31, 1989, SEC File No.
1-4300).
+10.10 -- Apache Corporation 1990 Phantom Stock Appreciation
Plan, dated as of September 28, 1990 (incorporated by
reference to Exhibit 10.17 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1990,
SEC File No. 1-4300).
+10.11 -- Apache Corporation 1990 Stock Incentive Plan, dated as
of September 28, 1990 (incorporated by reference to
Exhibit 10.18 to Registrant's Annual Report on Form
10-K for year ended December 31, 1990, SEC File No.
1-4300).
30
32
EXHIBIT NO. DESCRIPTION
----------- -----------
+10.12 -- Amendment No. 1 to the Apache Corporation 1990 Stock
Incentive Plan, dated as of July 17, 1992 (incorporated
by reference to Exhibit 4.4 to Registrant's
Registration Statement on Form S-8, Registration No.
33-53442, filed October 19, 1992).
+10.13 -- Apache Corporation 1995 Stock Option Plan, adopted
February 9, 1995 (incorporated by reference to Exhibit
10.13 to Registrant's Annual Report on Form 10-K for
year ended December 31, 1994, SEC File No. 1-4300).
+10.14 -- Apache Corporation Income Continuance Plan, as amended
and restated February 24, 1988 (incorporated by
reference to Exhibit 10.19 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1990,
SEC File No. 1-4300).
+10.15 -- Apache Corporation Directors' Deferred Compensation
Plan, as amended and restated September 14, 1994
(incorporated by reference to Exhibit 10.15 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1994, SEC File No. 1-4300).
+10.16 -- Apache Corporation Phantom Stock Appreciation Plan for
Directors, effective as of May 4, 1989 (incorporated by
reference to Exhibit 10.22 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1990,
SEC File No. 1-4300).
+10.17 -- Apache Corporation Outside Directors' Retirement Plan,
effective December 15, 1992 (incorporated by reference
to Exhibit 10.25 to Registrant's Annual Report on Form
10-K for year ended December 31, 1992, SEC File No.
1-4300).
+10.18 -- Apache Corporation Equity Compensation Plan for
Non-Employee Directors, adopted February 9, 1994, and
form of Restricted Stock Award Agreement (incorporated
by reference to Exhibit 10.26 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1993,
SEC File No. 1-4300).
+10.19 -- Amended and Restated Employment Agreement, dated
December 5, 1990, between Registrant and Raymond Plank
(incorporated by reference to Exhibit 10.9 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1990, SEC File No. 1-4300).
+10.20 -- Amended and Restated Employment Agreement, dated
December 20, 1990, between Registrant and John A. Kocur
(incorporated by reference to Exhibit 10.10 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1990, SEC File No. 1-4300).
+10.21 -- Employment Agreement, dated March 20, 1991, between
Registrant and William J. Johnson (incorporated by
reference to Exhibit 10.15 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1992,
SEC File No. 1-4300).
+10.22 -- Employment Agreement, dated June 6, 1988, between
Registrant and G. Steven Farris (incorporated by
reference to Exhibit 10.6 to Registrant's Annual Report
on Form 10-K for year ended December 31, 1989, SEC File
No. 1-4300).
+10.23 -- Consulting Agreement, dated November 1, 1993, between
Registrant and John A. Kocur (incorporated by reference
to Exhibit 10.30 to Registrant's Annual Report on Form
10-K for year ended December 31, 1993, SEC File No.
1-4300).
+10.24 -- Consulting Agreement, effective April 28, 1994, between
Registrant and William J. Johnson (incorporated by
reference to Exhibit 10.24 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1994,
SEC File No. 1-4300).
31
33
EXHIBIT NO. DESCRIPTION
----------- -----------
+10.25 -- Consulting Agreement, effective January 1, 1995,
between Registrant and John L. Moran (incorporated by
reference to Exhibit 10.25 to Registrant's Annual
Report on Form 10-K for the year ended December 31,
1994, SEC File No. 1-4300).
10.26 -- Indenture, dated as of April 1, 1988, between DEKALB
and Continental Illinois Bank and Trust Company of
Chicago, as trustee, relating to the 10% Long-Term
Notes and 9.875% Long-Term Notes (incorporated by
reference to Exhibit 4(a) to DEKALB's Registration
Statement on Form S-3, Registration No. 33-12534, filed
March 11, 1987).
10.27 -- Extendible Revolving Term Credit Agreement, dated
November 19, 1992, between DEKALB Energy Canada Ltd.
and the Royal Bank of Canada (incorporated by reference
to Exhibit 4.2 to DEKALB's Annual Report on Form 10-K
for year ended December 31, 1992, SEC File No. 0-2886).
+10.28 -- DEKALB Stock Option Plan and form of Stock Option
Agreement (incorporated by reference to Exhibits 10.1
and 10.2 to DEKALB's Annual Report on Form 10-K for
year ended August 31, 1986, SEC File No. 0-2886).
+10.29 -- Letter Agreement, dated July 23, 1992, between DEKALB
and Vincent J. Tkachyk (incorporated by reference to
Exhibit 10.3 to DEKALB's Annual Report on Form 10-K for
year ended December 31, 1992, SEC File No. 0-2886).
+10.30 -- DEKALB Deferred Management Employees Compensation Plan,
revised as of July 1, 1983, (incorporated by reference
to Exhibit 10.13 to DEKALB's Annual Report on Form 10-K
for year ended December 31, 1988, SEC File No. 0-2886).
+10.31 -- Employment Agreements between DEKALB and Bruce P.
Bickner, dated January 1, 1992, and John H. Witmer,
Jr., dated January 1, 1992 (incorporated by reference
to Exhibits 10.14 and 10.15 to DEKALB's Annual Report
on Form 10-K for year ended December 31, 1991, SEC File
No. 0-2886).
+10.32 -- DEKALB Long Term Incentive Plan, dated February 28,
1990 (incorporated by reference to Exhibit 10.16 to
DEKALB's Quarterly Report on Form 10-Q for quarter
ended March 31, 1990, SEC File No. 0-2886).
10.33 -- Firm Transportation Service Agreement, dated April 25,
1991, between DEKALB and Pacific Gas Transmission
Company (incorporated by reference to Exhibit 10.9 to
DEKALB's Annual Report on Form 10-K for year ended
December 31, 1992, SEC File No. 0-2886).
10.34 -- Asset Purchase and Sale Agreement, dated July 8, 1992,
between DEKALB and Louis Dreyfus Gas Holdings Inc.
(incorporated by reference to Exhibit 10.10 to DEKALB's
Current Report on Form 8-K, dated October 16, 1992, SEC
File No. 0-2886).
+10.35 -- DEKALB Profit Based Thrift Plan, effective September 1,
1989, as amended August 14, 1991 (incorporated by
reference to Exhibit 10.11 to DEKALB's Annual Report on
Form 10-K for year ended December 31, 1992, SEC File
No. 0-2886).
+10.36 -- Temporary Consulting Contracts between DEKALB and
Donald McMorland, dated June 1, 1994, and John Leteta,
dated November 28, 1994 (incorporated by reference to
Exhibits 10.11 and 10.12 to DEKALB's Annual Report on
Form 10-K for year ended December 31, 1994, SEC File
No. 0-2886).
32
34
EXHIBIT NO. DESCRIPTION
----------- -----------
*11.1 -- Statement regarding computation of earnings per share
of Registrant's common stock for the year ended
December 31, 1994.
*21.1 -- Subsidiaries of Registrant
*23.1 -- Consent of Arthur Andersen LLP
*23.2 -- Consent of Coopers & Lybrand
*23.3 -- Consent of Ryder Scott Company Petroleum Engineers
*27.1 -- Financial Data Schedule
- ---------------
* Filed herewith.
+ Management contracts or compensatory plans or arrangements required to be
filed herewith pursuant to Item 14 hereof.
Note: Debt instruments of the Registrant defining the rights of long-term
debt holders in principal amounts not exceeding 10 percent of the
Registrant's consolidated assets have been omitted and will be provided
to the Commission upon request.
(B) REPORTS ON FORM 8-K
The following reports on Form 8-K were filed by Apache during the fiscal
quarter ended December 31, 1994:
November 29, 1994 - Item 5. Other Events - Apache entered into a
memorandum of understanding, and subsequently into a purchase and sale
agreement with Texaco Exploration and Production Inc., under which
Apache will acquire Texaco's interest in over 300 oil and gas fields
for approximately $600 million, subject to certain adjustments.
December 6, 1994 - Item 5. Other Events - Apache issued $172.5 million
principal amount of 6-percent Convertible Subordinated Debentures due
2002, which are convertible into Apache common stock at a conversion
price of $30.68 per share.
December 21, 1994 - Item 5. Other Events - Apache entered into an
agreement and plan of merger with DEKALB pursuant to which (i) each
outstanding share of DEKALB stock will be converted into the right to
receive between .85 and .90 shares of Apache common stock, and (ii)
DEKALB will become a wholly-owned subsidiary of Apache.
The following reports on Form 8-K were filed by DEKALB during the fiscal
quarter ended December 31, 1994:
September 17, 1994 - Item 5. Other Events - Announcement of the death
of Michael E. Finnegan, Executive Vice President and Chief Financial
Officer of DEKALB.
December 21, 1994 - Item 5. Other Events - DEKALB entered into an
agreement and plan of merger among Apache, XPX Acquisitions, Inc.
("XPX"), a wholly owned subsidiary of Apache, and DEKALB, providing for
the merger of XPX into DEKALB in a transaction under Delaware law by
which DEKALB would become a wholly owned subsidiary of Apache; and Item
7 - Financial Statements and Exhibits related to such transaction.
33
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Amendment No. 1 on
Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly
authorized.
APACHE CORPORATION
Date: August 2, 1995 By: /s/ Mark A. Jackson
--------------------------
Mark A. Jackson,
Vice President, Finance
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Amendment No. 1 on Form 10-K/A has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
(Apache Corporation does not have a Principal Financial Officer.)
SIGNATURE TITLE
--------- -----
/s/ Raymond Plank* Chairman and Chief Executive Officer
- --------------------------------- (Principal Executive Officer)
Raymond Plank
/s/ Mark A. Jackson* Vice President, Finance
- ---------------------------------
Mark A. Jackson
/s/ R. Kent Samuel* Controller and Chief Accounting Officer
- --------------------------------- (Principal Accounting Officer)
R. Kent Samuel
/s/ Frederick M. Bohen* Director
- ---------------------------------
Frederick M. Bohen
/s/ Virgil B. Day* Director
- ---------------------------------
Virgil B. Day
/s/ G. Steven Farris* Director
- ---------------------------------
G. Steven Farris
/s/ Randolph M. Ferlic* Director
- ---------------------------------
Randolph M. Ferlic
/s/ Eugene C. Fiedorek* Director
- ---------------------------------
Eugene C. Fiedorek
/s/ W. Brooks Fields* Director
- ---------------------------------
W. Brooks Fields
/s/ Robert V. Gisselbeck* Director
- ---------------------------------
Robert V. Gisselbeck
/s/ Stanley K. Hathaway* Director
- ---------------------------------
Stanley K. Hathaway
/s/ John A. Kocur* Director
- ---------------------------------
John A. Kocur
/s/ Jay A. Precourt* Director
- ---------------------------------
Jay A. Precourt
/s/ Joseph A. Rice* Director
- ---------------------------------
Joseph A. Rice
*By /s/ Mark A. Jackson August 2, 1995
- ---------------------------------
Mark A. Jackson
Attorney-in-Fact
36
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Shareholders of Apache Corporation:
We have audited the accompanying consolidated balance sheet of Apache
Corporation (a Delaware corporation) and Subsidiaries as of December 31, 1994
and 1993, and the related statements of consolidated income, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
DEKALB Energy Company, a company acquired during 1995 in a transaction accounted
for as a pooling of interests, as discussed in Note 1. Such financial statements
are included in the consolidated financial statements of Apache Corporation and
reflect total assets and total revenues of 10 percent and eight percent,
respectively, of the related consolidated totals as of and for the year ended
December 31, 1994, total assets and total revenues of 12 percent and nine
percent, respectively, of the related consolidated totals as of and for the year
ended December 31, 1993, and total revenues of 12 percent of the related
consolidated total for the year ended December 31, 1992, after restatement to
reflect certain adjustments as set forth in Note 1. The financial statements of
DEKALB Energy Company, prior to those adjustments, were audited by other
auditors whose report has been furnished to us and our opinion, insofar as it
relates to amounts included for DEKALB Energy Company, is based solely upon the
report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits, and the report of other auditors, provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Apache Corporation and Subsidiaries
as of December 31, 1994 and 1993, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
As explained in Note 4 to the consolidated financial statements, effective
January 1, 1993, the Company changed its method of accounting for income taxes.
ARTHUR ANDERSEN LLP
Houston, Texas
May 17, 1995
F-1
37
AUDITORS' REPORT
To the Shareholders and Board of Directors of DEKALB Energy Company:
We have audited the consolidated balance sheets of DEKALB Energy Company as at
December 31, 1994 and 1993, and the consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the consolidated financial position of DEKALB Energy Company
as at December 31, 1994 and 1993, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
1994, in accordance with United States generally accepted accounting principles.
COOPERS & LYBRAND
Calgary, Alberta
February 13, 1995
F-2
38
REPORT OF MANAGEMENT
The financial statements and related financial information of Apache
Corporation and Subsidiaries were prepared by and are the responsibility of
management. The statements have been prepared in conformity with generally
accepted accounting principles and include amounts that are based on
management's best estimates and judgments.
Management maintains and places reliance on systems of internal control
designed to provide reasonable assurance, weighing the costs with the benefits
sought, that all transactions are properly recorded in the Company's books and
records, that policies and procedures are adhered to and that assets are
safeguarded. The systems of internal controls are supported by written policies
and guidelines, internal audits and the selection and training of qualified
personnel.
The financial statements of Apache Corporation and its Subsidiaries, except
for DEKALB Energy Company, have been audited by Arthur Andersen LLP,
independent public accountants. The financial statements of DEKALB Energy
Company and its subsidiaries were audited by Coopers & Lybrand. Their audits
included developing an overall understanding of each Company's accounting
systems, procedures and internal controls and conducting tests and other
auditing procedures sufficient to support their opinions on the fairness of the
respective consolidated financial statements.
The Apache Corporation Board of Directors exercises its oversight
responsibility for the financial statements through its Audit Committee,
composed solely of directors who are not employed by Apache. The Audit Committee
meets periodically with management, internal auditors and the independent public
accountants to ensure that they are successfully completing designated
responsibilities. The internal auditors and independent public accountants have
open access to the Audit Committee to discuss auditing and financial reporting
issues.
Raymond Plank
Chairman of the Board
and Chief Executive Officer
Mark A. Jackson
Vice President, Finance
R. Kent Samuel
Controller and Chief Accounting Officer
F-3
39
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
(RESTATED)
For the Year Ended December 31,
----------------------------------
1994 1993 1992
---- ---- ----
(In thousands, except per share data)
REVENUES:
Oil and gas production revenues ................... $ 538,389 $ 481,848 $ 453,835
Gathering, processing and marketing revenues ...... 44,287 25,862 28,594
Equity in income of affiliates .................... 459 624 3,451
Gain on sale of investment in affiliate ........... -- -- 30,259
Other revenues .................................... 9,491 4,298 1,264
--------- --------- ---------
592,626 512,632 517,403
--------- --------- ---------
OPERATING EXPENSES:
Depreciation, depletion and amortization .......... 257,821 198,320 179,876
Impairments ....................................... 7,300 23,200 65,320
(Gain) loss on disposal of assets ................. -- (513) 34,942
Operating costs ................................... 149,474 140,580 144,170
Gathering, processing and marketing costs ......... 37,866 21,010 21,452
Administrative, selling and other ................. 38,729 36,629 40,599
Financing costs:
Interest expense ............................. 37,838 34,205 45,731
Amortization of deferred loan costs .......... 3,987 3,896 3,888
Capitalized interest ......................... (6,034) (6,279) (8,996)
Interest income .............................. (1,048) (1,145) (1,170)
--------- --------- ---------
525,933 449,903 525,812
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES ...................... 66,693 62,729 (8,409)
Provision for income taxes ........................ 21,110 21,308 6,223
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS ............... 45,583 41,421 (14,632)
Loss from discontinued operations ................. -- -- (1,050)
Cumulative effect of change in accounting principle -- 5,334 --
--------- --------- ---------
NET INCOME (LOSS) ...................................... $ 45,583 $ 46,755 $ (15,682)
========= ========= =========
INCOME (LOSS) PER SHARE:
Continuing operations .............................. $ .65 $ .67 $ (.26)
Discontinued operations ............................ -- -- (.02)
Cumulative effect of change in accounting principle -- .08 --
--------- --------- ---------
NET INCOME (LOSS) PER COMMON SHARE ..................... $ .65 $ .75 $ (.28)
========= ========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ............. 69,715 62,013 55,344
========= ========= =========
The accompanying summary of significant accounting policies and notes to
consolidated financial statements are integral parts of this statement.
F-4
40
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(RESTATED)
For the Year Ended December 31,
---------------------------------------
1994 1993 1992
--------- --------- ---------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from continuing operations ..................... $ 45,583 $ 41,421 $ (14,632)
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by operating activities:
Depreciation, depletion and amortization ................ 257,821 198,320 179,876
Impairments ............................................. 7,300 23,200 65,320
Amortization of deferred loan costs ..................... 3,987 3,896 3,888
Provision for deferred income taxes ..................... 24,385 20,539 (998)
Gain on sale of investment in affiliate ................. -- -- (30,259)
Gain (loss) on disposal of assets ....................... -- (513) 34,942
Other ................................................... 46 140 603
Cash distributions in excess of (less than) earnings of
affiliates ................................................. (459) (662) 2,650
Gain on sale of stock held for investment .................... (2,178) -- --
Changes in operating assets and liabilities, net of effects of
acquisitions:
(Increase) decrease in receivables ...................... (12,128) (8,641) 12,373
(Increase) decrease in advances to oil and
gas ventures and other ............................. (2,281) 137 (3,598)
Increase (decrease) in deferred charges and other ....... (3,238) 2,120 (5,968)
Decrease in payables .................................... (17,288) (5,463) (12,508)
Increase (decrease) in accrued operating costs .......... 541 (8,177) (8,660)
Advance from gas purchaser .............................. 67,376 -- --
Decrease in deferred credits and
noncurrent liabilities ............................. (11,768) (11,166) (556)
--------- --------- ---------
Cash flows from continuing operations .............. 357,699 255,151 222,473
Cash flows from discontinued operations ............ 70 840 480
--------- --------- ---------
Net cash provided by operating activities .... 357,769 255,991 222,953
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Exploration and development expenditures ..................... (344,125) (237,831) (154,771)
Acquisition of oil and gas properties ........................ (180,742) (192,256) (64,867)
Non-cash portion of net oil and gas property additions ....... 5,480 8,789 2,877
Purchase of AERC stock, net of cash acquired ................. (13,885) (70,692) --
Purchase of stock held for investment ........................ (5,051) -- --
Proceeds from sale of oil and gas properties ................. 19,525 10,342 142,098
Prepaid acquisition cost ..................................... (25,377) -- --
Proceeds from sale of stock held for investment .............. 6,640 -- --
Proceeds from sale of gas gathering system ................... -- 32,201 --
Proceeds from sale of investment in affiliate ................ -- -- 58,200
Other capital expenditures, net .............................. (11,968) (32,370) (12,609)
Other, net ................................................... (1,716) 1,145 (1,173)
--------- --------- ---------
Net cash used by investing activities ........ (551,219) (480,672) (30,245)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings ......................................... 244,058 275,424 301,378
Payments on long-term debt ................................... (38,019) (180,400) (439,253)
Net increase (decrease) in short-term borrowings ............. (5,478) 5,455 (1,631)
Dividends paid ............................................... (17,131) (14,919) (13,130)
Proceeds from issuance of common stock ....................... 4,599 134,224 709
Payments to acquire treasury stock ........................... (3,389) (104) (331)
Costs of debt and equity transactions ........................ (875) (270) (3,971)
--------- --------- ---------
Net cash provided (used) by financing activities ... 183,765 219,410 (156,229)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ............................................. (9,685) (5,271) 36,479
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR ............................................ 39,728 44,999 8,520
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR .......................... $ 30,043 $ 39,728 $ 44,999
========= ========= =========
The accompanying summary of significant accounting policies and notes to
consolidated financial statements are integral parts of this statement.
F-5
41
APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(RESTATED)
December 31,
----------------------
1994 1993
---- ----
(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................ $ 30,043 $ 39,728
Receivables .............................................. 111,310 99,714
Inventories .............................................. 8,868 7,152
Advances to oil and gas ventures and other ............... 10,093 7,750
------------ ------------
160,314 154,344
------------ ------------
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of full cost accounting:
Proved properties ................................... 3,265,770 2,815,036
Unproved properties and properties under development,
not being amortized ............................ 157,379 114,645
Gas gathering, transmission and processing facilities .... 25,809 25,809
Other .................................................... 49,912 39,755
------------ ------------
3,498,870 2,995,245
Less: Accumulated depreciation, depletion and amortization (1,682,039) (1,424,248)
------------ ------------
1,816,831 1,570,997
------------ ------------
OTHER ASSETS:
Deferred charges and other ............................... 59,482 33,862
------------ ------------
$ 2,036,627 $ 1,759,203
============ ============
The accompanying summary of significant accounting policies and notes to
consolidated financial statements are integral parts of this statement.
F-6
42
APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(RESTATED)
December 31,
------------------------------
1994 1993
---- ----
(In thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term notes and current maturities of long-term debt ............ $ 100 $ 14,680
Accounts payable ..................................................... 92,861 128,084
Accrued operating expense ............................................ 16,722 19,471
Accrued income taxes ................................................. -- 6,048
Accrued exploration and development .................................. 25,077 15,442
Accrued compensation and benefits .................................... 10,794 9,541
Other accrued expenses ............................................... 17,963 16,616
------------ ------------
163,517 209,882
------------ ------------
LONG-TERM DEBT ............................................................ 719,033 504,334
------------ ------------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
Income taxes ......................................................... 151,216 125,878
Advance from gas purchaser ........................................... 67,376 --
Other ................................................................ 44,398 50,513
------------ ------------
262,990 176,391
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS' EQUITY:
Common stock, $1.25 par, 215,000,000 shares authorized, 70,785,067 and
70,753,137 shares issued, respectively .......................... 88,482 88,442
Paid-in capital ...................................................... 500,101 499,817
Retained earnings .................................................... 335,293 306,892
Treasury stock, at cost, 1,118,975 and 1,248,827 shares, respectively (13,452) (14,414)
Currency translation adjustments ..................................... (19,337) (12,141)
------------ ------------
891,087 868,596
------------ ------------
$ 2,036,627 $ 1,759,203
============ ============
The accompanying summary of significant accounting policies and notes to
consolidated financial statements are integral parts of this statement.
F-7
43
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
(RESTATED)
Currency Total
Common Paid-In Retained Treasury Translation Shareholders'
Stock Capital Earnings Stock Adjustments Equity
----- ------- -------- ----- ----------- --------
(In thousands)
BALANCE, DECEMBER 31, 1991,
as previously reported ............... $ 68,850 $ 321,343 $ 327,973 $(105,884) $ 12,016 $ 624,298
DEKALB treasury shares retired........ (2,521) (87,092) -- 89,613 -- --
Par value increase for DEKALB shares
outstanding......................... 4,538 (4,538) -- -- -- --
Cumulative effect on prior years of
conforming adjustment to
depreciation, depletion
and amortization ................... -- -- (23,117) -- -- (23,117)
--------- --------- --------- --------- --------- ---------
ADJUSTED BALANCE, DECEMBER 31, 1991 ....... 70,867 229,713 304,856 (16,271) 12,016 601,181
Net income (loss) .................... -- -- (15,682) -- -- (15,682)
Dividends ($.28 per common share) .... -- -- (13,135) -- -- (13,135)
Common shares issued ................. 79 435 -- -- -- 514
Treasury shares issued ............... -- (717) -- 935 -- 218
Treasury shares purchased ............ -- -- -- (331) -- (331)
Treasury shares retired .............. (34) (294) -- 328 -- --
Currency translation adjustments ..... -- -- -- -- (18,241) (18,241)
--------- --------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1992 ................ 70,912 229,137 276,039 (15,339) (6,225) 554,524
Net income ........................... -- -- 46,755 -- -- 46,755
Dividends ($.28 per common share) .... -- -- (15,902) -- -- (15,902)
Common shares issued ................. 17,538 270,859 -- -- -- 288,397
Treasury shares issued ............... -- (108) -- 950 -- 842
Treasury shares purchased ............ -- -- -- (104) -- (104)
Treasury shares retired .............. (8) (71) -- 79 -- --
Currency translation adjustments ..... -- -- -- -- (5,916) (5,916)
--------- --------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1993 ................ 88,442 499,817 306,892 (14,414) (12,141) 868,596
Net income ........................... -- -- 45,583 -- -- 45,583
Dividends ($.28 per common share) .... -- -- (17,182) -- -- (17,182)
Common shares issued ................. 281 3,428 -- -- -- 3,709
Treasury shares issued ............... -- -- -- 966 -- 966
Treasury shares purchased ............ -- -- -- (3,389) -- (3,389)
Treasury shares retired .............. (241) (3,144) -- 3,385 -- --
Currency translation adjustments ..... -- -- -- -- (7,196) (7,196)
--------- --------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1994 ................ $ 88,482 $ 500,101 $ 335,293 $ (13,452) $ (19,337) $ 891,087
========= ========= ========= ========= ========= =========
The accompanying summary of significant accounting policies and notes to
consolidated financial statements are integral parts of this statement.
F-8
44
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Apache Corporation (Apache or the Company) and its subsidiaries after
elimination of intercompany balances and transactions. The Company's interests
in oil and gas ventures and partnerships are proportionately consolidated.
Investments in incorporated affiliates in which Apache owns between a 20-percent
and 50-percent interest are accounted for using the equity method.
INVENTORIES
Inventories consist principally of tubular goods and production equipment
stated at the lower of weighted average cost or market.
PROPERTY AND EQUIPMENT
The Company uses the full cost method of accounting for its investment in
oil and gas properties. Under this method, the Company capitalizes all
acquisition, exploration and development costs incurred for the purpose of
finding oil and gas reserves, including salaries, benefits and other internal
costs directly attributable to these activities. Apache capitalized $33.2
million, $27.8 million and $25.9 million of internal costs in 1994, 1993 and
1992, respectively. Costs associated with production and general corporate
activities are expensed in the period incurred. Internal costs attributable to
the management of the Company's producing properties, before recoveries from
industry partners, totaled $13.2 million, $10.8 million and $ 10.6 million in
1994, 1993 and 1992, respectively, and are included in operating costs on the
Company's Statement of Consolidated Income. Interest costs related to
development projects in progress for an extended period are also capitalized to
oil and gas properties. Unless significant reserves are involved, proceeds from
the sale of oil and gas properties are accounted for as reductions to
capitalized costs and gains or losses are not recognized.
Apache computes the provision for depreciation, depletion and amortization
(DD&A) of oil and gas properties on a quarterly basis using the
unit-of-production method based upon production and estimates of proved reserve
quantities. Unevaluated costs and related capitalized interest costs are
excluded from the amortization base until the properties associated with these
costs are evaluated and determined to be productive. The amortizable base
includes estimated future development cost and dismantlement, restoration and
abandonment costs, net of estimated salvage values. These future costs are
generally estimated by engineers employed by Apache.
Apache limits, on a country-by-country basis, the capitalized costs of
proved oil and gas properties, net of accumulated DD&A, to the estimated future
net cash flows from proved oil and gas reserves, net of related tax effects,
discounted at 10 percent. If capitalized costs exceed this limit, the excess is
charged to DD&A expense. The Company recorded write downs of capitalized costs
in 1992 totaling $53.3 million. Included in the estimated future net cash flows
are Canadian provincial tax credits expected to be realized beyond the date at
which the legislation, under its provisions, could be repealed. To date, the
Canadian provincial government has not indicated an intention to repeal this
legislation.
The costs of certain unevaluated leasehold acreage and wells in the
process of being drilled are not being amortized. Costs not being amortized are
periodically assessed for possible impairments or reductions in value. If a
reduction in value has occurred, costs being amortized are increased or a
charge is made against earnings for those international operations where a
reserve base is not yet established.
Buildings, equipment, gas gathering, transmission and processing facilities
are depreciated on a straight-line basis over the estimated useful lives of the
assets which range from two to 20 years. Accumulated depreciation for these
assets totaled $25.7 million and $19.3 million at December 31, 1994 and 1993,
respectively.
ACCOUNTS PAYABLE
Included in accounts payable at December 31, 1994 and 1993, are liabilities
of approximately $30.3 million and $38.6 million, respectively, representing the
amount by which checks issued but not presented to the Company's banks for
collection exceeded balances in applicable bank accounts.
F-9
45
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
REVENUE RECOGNITION
Apache uses the sales method of accounting for natural gas revenues. Under
this method, revenues are recognized based on actual volumes of gas sold to
purchasers. The volumes of gas sold may differ from the volumes to which Apache
is entitled based on its interests in the properties. Differences between
volumes sold and volumes based on entitlements create gas imbalances which are
generally reflected as adjustments to reported gas reserves and future cash
flows. Adjustments for gas imbalances totaled less than one percent of Apache's
proved gas reserves at December 31, 1994. Revenue is deferred and a liability is
recorded for those properties where the estimated remaining reserves will not be
sufficient to enable the underproduced owner to recoup their entitled share
through production.
HEDGING ACTIVITIES
The Company periodically enters into commodity derivative contracts in
order to either fix or support oil and gas prices at targeted levels and to
minimize the impact of price fluctuations. Apache uses swaps, puts or
fixed-price contracts to hedge its commodity prices. Gains or losses on these
hedging activities are recognized in oil and gas production revenues when the
hedged production occurs. Estimates of future liabilities and receivables
applicable to oil and gas commodity hedges are reflected in future cash flows
from proved reserves in the supplemental oil and gas disclosures, with such
estimates based on prices in effect as of the date of the reserve report.
The Company also purchases interest rate caps and enters into interest rate
swap transactions in its management of interest rate exposure. Interest rate
swap agreements generally involve the exchange of fixed and floating interest
payment obligations without the exchange of the underlying principal amounts.
Gains or losses on these activities are recognized in interest expense in the
period hedged by the agreements.
INCOME TAXES
The Company provides deferred income taxes for all temporary differences
between financial and income tax reporting. Effective January 1, 1993, the
Company implemented the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." Under the liability
method specified by SFAS No. 109, deferred taxes are determined based on the
estimated future tax effect of differences between the financial statement and
tax bases of assets and liabilities given the provisions of enacted tax laws.
The adoption of SFAS No. 109 resulted in a one time benefit of $5.3 million in
the first quarter of 1993.
FOREIGN CURRENCY TRANSLATION
The U.S. dollar is considered the functional currency for each of the
Company's international operations except for the Canadian subsidiary whose
functional currency is Canadian dollars. Translation adjustments resulting from
translating the Canadian subsidiary foreign currency financial statements into
U.S. dollar equivalents are reported separately and accumulated in a separate
component of shareholders' equity. For other international operations,
translation gains or losses are recognized in current net income and were not
material in any of the periods presented.
INCOME PER COMMON SHARE
Income per common share amounts are based on the weighted average number of
shares of common stock outstanding. The effects of common equivalent shares,
which would include shares from the assumed conversion of the 3.93-percent
notes, were immaterial or were not dilutive for each of the periods presented.
Furthermore, fully diluted income per share, assuming conversion of certain of
the convertible debentures, was not significantly different than primary income
per share for all periods presented.
STATEMENT OF CONSOLIDATED CASH FLOWS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. These
investments are carried at cost which approximates market.
F-10
46
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACQUISITIONS AND DIVESTITURES
COMPLETED TRANSACTIONS
On May 17, 1995, Apache acquired DEKALB Energy Company (DEKALB, now known
as DEK Energy Company), an oil and gas company engaged in the exploration for,
and the development of, crude oil and natural gas in Canada, through a merger
which resulted in DEKALB becoming a wholly-owned subsidiary of Apache.
Pursuant to the merger agreement, DEKALB shareholders received .8764 shares of
Apache common stock in exchange for each share of DEKALB Class A stock and
Class B stock. As a result, 8.4 million shares of Apache common stock were
issued in exchange for outstanding DEKALB stock and for DEKALB employee
stock options. The estimated merger costs of approximately $10 million will
be charged to expense in the second quarter of 1995.
The merger was accounted for as a "pooling of interests". As a result,
the financial information has been restated to present information for 1994 and
preceding years on a combined basis using the "pooling of interests" method of
accounting. The common stock data presented herein includes DEKALB, restated
based upon the .8764 exchange ratio for the merger.
In connection with the DEKALB merger, the methods used by Apache and DEKALB
in computing DD&A of proved oil and gas properties were conformed to the
units-of-production method using physical units. This method was previously
used by DEKALB and in conforming the methods used, Apache adopted the
units-of-production method in lieu of the future gross revenue method. The
conforming adjustments for DD&A has been reflected retroactively in the
combined financial statements along with an adjustment to DEKALB's previously
recorded deferred tax valuation allowance for U.S. operating loss carryforwards
expected to be utilized by Apache in future periods. All other adjustments are
reclassifications to conform financial statement presentation. A reconciliation
of the previously separate results to the restated combined results is as
follows:
1994 1993 1992
---- ---- ----
(In thousands)
Revenues:
Apache ................................ $ 545,621 $ 466,638 $ 454,300
DEKALB ................................ 46,290 45,903 60,733
Reclassifications to
conform presentation ................. 715 91 2,370
--------- --------- ---------
$ 592,626 $ 512,632 $ 517,403
========= ========= =========
Income (loss) from continuing operations:
Apache ................................ $ 42,837 $ 37,334 $ 47,776
DEKALB ................................ 6,813 5,672 (69,253)
Conforming adjustments:
DD&A ............................. (6,682) (4,311) 99
Income taxes...................... 2,615 2,726 6,746
--------- --------- ---------
$ 45,583 $ 41,421 $( 14,632)
========= ========= =========
Net income (loss):
Apache ................................ $ 42,837 $ 37,334 $ 47,776
DEKALB ................................ 6,813 11,006 (70,303)
Conforming adjustments:
DD&A ............................. (6,682) (4,311) 99
Income taxes...................... 2,615 2,726 6,746
--------- --------- ---------
$ 45,583 $ 46,755 ($ 15,682)
========= ========= =========
F-11
47
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Additionally, beginning retained earnings as of January 1, 1992, has been
reduced by $23.1 million, relating to the conforming adjustment to DD&A.
Apache and DEKALB had no significant intercompany transactions prior to the
merger.
In December 1994, Apache purchased substantially all of the U.S. oil and
gas properties of Crystal Oil Company (Crystal) for approximately $95.8 million.
The producing oil and gas properties acquired from Crystal are located primarily
along the Arkansas-Louisiana border and southern Louisiana. The acquisition also
included approximately 32,000 net undeveloped mineral acres in southern
Louisiana.
In 1993, Apache purchased the outstanding stock of Hadson Energy Resources
Corporation (now known as Apache Energy Resources Corporation, AERC) for
approximately $98 million through a series of privately negotiated transactions
and a merger approved by a majority of AERC stockholders. In July 1993, Apache
completed the purchase of 4.2 million shares of AERC's outstanding common stock,
or approximately 68 percent of the AERC common stock then outstanding, for $59.2
million. The Company agreed to pay an additional $1.00 per share ($4.2 million)
to the selling stockholders if the Company increased its ownership in AERC to 80
percent or more. Pursuant to the merger agreement approved by AERC stockholders
on November 12, 1993, AERC stockholders other than Apache could elect to
receive, for each share of AERC common stock, either $15 in cash or .574 share
of Apache common stock. Apache issued 307,977 shares of Apache common stock
valued at $7.9 million and paid a total of $76.1 million to former stockholders
of AERC as consideration for the merger. At December 31, 1993, Apache reflected
a liability of $13.9 million accrued for AERC shares which had not yet been
surrendered to Apache. During 1994, Apache completed the purchase of the
remaining AERC shares.
Also in 1993, Apache entered into two agreements to purchase 104 Bcfe of
proved reserves from Hall-Houston Oil Company (Hall-Houston) for an aggregate
consideration of $113.7 million. In June 1993, Apache closed the first of the
two transactions, paying $29.3 million for Hall-Houston's interest in Mustang
Island Blocks 787 and 805. The second transaction, encompassing substantially
all of Hall-Houston's producing properties in the Gulf of Mexico for an
additional $84.4 million, was completed in August 1993. These transactions
included interests in 63 producing fields and 12 fields under development or
awaiting pipeline connections.
Effective November 1, 1992, Apache completed the acquisition of Shell
Offshore Inc.'s 93-percent working interest in Matagorda Island Blocks 681 and
682 in the Gulf of Mexico. Apache paid $57.4 million for properties, which
included 14 miles of gathering lines and approximately 11,500 net acres of
leases.
Except for the DEKALB transaction, each transaction described above
has been accounted for using the purchase method of accounting and have
been included in the financial statements of Apache since the dates of
acquisition.
Effective October 16, 1992, DEKALB sold substantially all of its U.S. oil
and gas properties to Louis Dreyfus Gas Holdings Inc. (Dreyfus). DEKALB received
$104 million of gross proceeds from the sale, which included approximately $6.0
million of cash flow from the properties from the effective date (July 1, 1992).
Pursuant to the terms of the sale, Dreyfus assumed certain liabilities related
to the properties. A pre-tax loss of $34.9 million was recorded on the sale
in 1992.
Effective May 1, 1992, Apache sold its 36.67-percent general partnership
interest in Natural Gas Clearinghouse (NGC) for $58.2 million. The Company
recognized a gain on the sale of approximately $30.3 million or $19.8 million
after tax.
The loss from discontinued operations in 1992 is a result of a change to
estimated future expense relating to the sale of the stock of two DEKALB
subsidiaries; a brokerage business in 1986 and Lindsay Manufacturing Co.
in 1989.
F-12
48
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following unaudited pro forma summary of the Company's restated
consolidated results of operations for 1994 was prepared as if the Texaco
transaction, discussed below, occurred on January 1, 1994. The pro forma data
for 1993 was prepared as if the Hall-Houston transactions and AERC acquisition
occurred as of January 1, 1993. The pro forma data for 1992 assumes that the
Hall-Houston transactions, the AERC acquisition and the NGC sale occurred as of
or prior to January 1, 1992. The pro forma data is based on numerous
assumptions and is not necessarily indicative of future operations.
For the Year Ended December 31,
--------------------------------------
(Unaudited) 1994 1993 1992
----------- -------- -------- -------
(In thousands, except per share data)
Oil and gas production revenues ... $701,869 $526,260 $532,197
Total revenues .................... 755,926 561,065 570,605
Net income ........................ 35,359 46,391 (36,442)
Income per share .................. .51 .74 (.65)
Weighted average shares outstanding 69,715 62,291 55,652
1995 Transactions
On March 1, 1995, Apache purchased certain U.S. oil and gas properties from
Texaco Exploration and Production Inc. (Texaco) for an adjusted purchase price
of $571 million, effective January 1, 1995. The transaction is subject to
customary closing and post-closing adjustments. Apache delivered a $25 million
deposit, representing a portion of the purchase price, upon execution of the
purchase and sale agreement with Texaco in December 1994, and delivered the
balance in cash at closing. Funds for the Texaco transaction were obtained from
several sources, including increased borrowing capacity under the Company's bank
credit facility and proceeds of Apache's $172.5 million 6-percent Convertible
Subordinated Debentures due 2002, which were issued on January 4, 1995. (See
Note 3.)
Information concerning Apache's acquisition of DEKALB is set forth above
under the heading "Completed Transactions".
Planned Transactions
On February 15, 1995, Apache announced plans to accelerate the disposition
of lower margin and non-strategic oil and gas properties, including sales of a
substantial portion of its Rocky Mountain properties and non-strategic assets
from its other regions, and to close its Denver, Colorado office.
2. INVESTMENTS IN EQUITY SECURITIES
Apache has certain investments in equity securities which are classified as
"available-for-sale" pursuant to SFAS No. 115, "Accounting For Certain
Investments in Debt and Equity Securities." At December 31, 1994, the aggregate
cost basis totaled $7.2 million and the related aggregate fair value
approximated cost.
During 1994, the Company realized gross gains totaling $2.2 million from
the sale of available-for-sale securities. Apache utilizes the average cost
method in computing realized gains or losses, which are included in other
revenues on the accompanying Statement of Consolidated Income.
F-13
49
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1993, Apache owned approximately 20 percent of the
outstanding shares of Key Production Company, Inc. (Key). In the fourth quarter
of 1994, Apache reduced its ownership interest in Key to approximately 10
percent and discontinued reporting equity earnings from the former affiliate.
Equity earnings attributable to Key, and an equity investment in NGC during part
of 1992 (See Note 1), are presented below:
For the Year Ended December 31,
-----------------------------------
1994 1993 1992
---- ---- ----
(In thousands)
Income from affiliates:
Key Production Company .......... $ 459 $ 624 $ 4
Natural Gas Clearinghouse ....... -- -- 3,447
------- ------- -------
$ 459 $ 624 $ 3,451
======= ======= =======
3. DEBT
December 31,
----------------------------
1994 1993
----------- -----------
(In thousands)
Senior debt:
Apache revolving bank facility ............. $ 454,000 $ 240,000
9.25-percent notes due 2002, net of discount 99,713 99,688
3.93-percent convertible notes due 1997 .... 75,000 75,000
----------- -----------
628,713 414,688
----------- -----------
Other obligations:
9.875-percent note due 2000 ................ 29,225 29,225
10-percent note due 1998 ................... 22,100 22,100
Royal Bank of Canada facility .............. 10,222 5,663
AEL acceptance facility .................... 25,800 22,000
AERC bank facility ......................... -- 19,550
Share of offshore partnership financing .... 2,973 4,636
Other notes payable ........................ 100 1,152
----------- -----------
90,420 104,326
----------- -----------
Total debt .................................... 719,133 519,014
Less: Current maturities ...................... (100) (14,680)
----------- -----------
Long-term debt ................................ $ 719,033 $ 504,334
=========== ===========
At December 31, 1994, Apache had a $700 million revolving bank facility
funded by a group of banks. The maximum amount available was subject to periodic
redetermination of a borrowing base, determined solely at the discretion of the
banks, predicated upon the Company's oil and gas reserve values and forecast
rate of production. As of December 31, 1994, the borrowing base was $560 million
and the principal amount outstanding was $454 million. The bank facility was
scheduled to mature on April 30, 1998, and the agreement provided for perpetual
one-year extensions as requested year-by-year by the Company and subject to the
approval of the banks. Interest on amounts borrowed was charged at the First
National Bank of Chicago's base rate or at London Interbank Offered Rates
(LIBOR) plus a margin determined by the Company's public senior debt rating and
its ratio of debt to total capital. At December 31, 1994, the margin was .375
percent. Facility and commitment fees were also determined similar to borrowing
fees. The Company paid a facility fee of .25 percent on the available portion of
the commitment and .125 percent on the unavailable portion of the commitment.
F-14
50
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On March 1, 1995, the Company's revolving bank facility agreement was
amended and restated, increasing the facility to $1 billion. The Company's
borrowing base, including the value of the Texaco properties, was initially set
at $765 million. The facility expires on March 1, 2000, and may be extended in
one-year increments with the lenders' consent. In addition to the borrowing base
predicated on the Company's oil and gas reserve value, the bank facility
provides a non-conforming borrowing base as defined in the agreement. The
initial non-conforming borrowing base of $135 million is available until May 10,
1996, and at reduced amounts through November 4, 1996. Financial covenants of
the amended agreement are similar to those existing at December 31, 1994, and
are described below. Based on the Company's ratio of debt to total capital at
March 1, 1995, the interest rate margin over LIBOR increased from .375 percent
to 1.125 percent. At the March 1, 1995 debt level, the Company will pay a
facility fee of .375 percent of the available portion of the commitment and
.1875 percent of the unavailable portion of the commitment.
The 9.25-percent notes totaling $100 million were issued by Apache in May
1992 and are not redeemable prior to their maturity in June 2002. In December
1992, Apache issued the 3.93-percent convertible notes. These notes mature in
November 1997, and are not redeemable prior to maturity. They are convertible
into Apache common stock at $27 per share, subject to adjustment under certain
circumstances.
The indentures for the 9.25-percent and 3.93-percent note issues impose
substantially similar obligations on the Company including limits on the
Company's ability to incur debt secured by certain liens and on its ability to
enter into certain sale and leaseback transactions. Upon certain changes in
control of the Company, both issues are subject to mandatory repurchase (or
conversion at the option of the noteholders in the case of the 3.93-percent
notes).
Financial covenants of the $700 million bank facility and the 3.93-percent
notes require the Company to maintain a minimum consolidated tangible net worth
of not less than $576 million as of December 31, 1994 (increased to $650 million
with respect to the bank facility as amended March 1, 1995). The minimum
consolidated tangible net worth requirement is adjusted quarterly for subsequent
earnings and equity transactions. The company is also required to maintain a
ratio of (i) earnings before interest expense, state and federal taxes and
depreciation, depletion and amortization to (ii) consolidated interest expense
of not less than 3.7:1 for the banks and 3.5:1 for the lenders under the
3.93-percent notes. The Company was in compliance with all financial covenants
at December 31, 1994.
The 9.875-percent and 10-percent notes relate to DEKALB's operations.
On or after April 15, 1995, DEKALB is permitted to redeem in full the $22.1
million outstanding of 10-percent notes, at a price equal to 100 percent of
the principal amount, plus accrued interest to the redemption date. Upon
receipt of the proceeds from the disposition of certain U.S. assets, DEKALB
repurchased $55.3 million of its publicly held notes in 1992, and repurchased
an additional $18.4 million in 1993. The repurchase price approximated the
recorded value of the notes.
In connection with Apache's Canadian operations, DEKALB Energy Canada Ltd.
also had a $30 million Canadian funds revolving term credit facility with the
Royal Bank of Canada, under which $10.2 million was outstanding at December 31,
1994.
In conjunction with the AERC acquisition, Apache assumed two bank credit
agreements outstanding at the time it acquired a majority interest in AERC.
During 1994, Apache terminated a bank credit facility held in the name of AERC
and amended and restated the debt agreement of AERC's wholly-owned subsidiary,
Apache Energy Limited (AEL, formerly known as Hadson Energy Limited). The AEL
Acceptance Facility is a separate credit facility provided by Bank of Montreal
which provided funding for the construction of an offshore gas gathering
project. The borrowing base is $30 million, of which $25.8 million was
outstanding at December 31, 1994. The AEL credit facility is not guaranteed by
Apache.
F-15
51
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
An $18 million banking facility made in 1992 by Apache on behalf of Apache
Offshore Investment Partnership had $11.1 million outstanding at December 31,
1994, of which Apache's share was $3 million. Availability under this facility
is reduced quarterly by $1.5 million beginning in October 1995.
On January 4, 1995, Apache completed the issue of $172.5 million of
6-percent Convertible Subordinated Debentures due 2002 (the 6-percent
debentures). The 6-percent debentures are convertible at the option of the
holder into Apache common stock at a conversion price of $30.68 per share.
As of December 31, 1994 and 1993, the Company had approximately $12 million
and $14 million, respectively, of unamortized costs associated with its various
debt obligations. These costs are reflected as deferred charges and other in the
accompanying Consolidated Balance Sheet and are being amortized over the life of
the related debt.
See Note 8 for disclosure concerning the fair value of debt instruments.
AGGREGATE MATURITIES OF DEBT (IN THOUSANDS)
Unaudited
Pro Forma
December 31, 1994 at May 17, 1995*
----------------- -----------------
1995 ............................. $ 100 $ --
1996 ............................. 10,382 80,441
1997 ............................. 76,607 76,661
1998 ............................. 477,305 23,411
1999 ............................. 25,800 22,500
Thereafter ....................... 128,939 1,066,449
---------- ----------
$ 719,133 $1,269,462
========== ==========
*Pro forma data reflects the issuance of $172.5 million of 6-percent
debentures as described above and $825 million outstanding under the revolving
bank facility on May 17, 1995.
4. INCOME TAXES
Income(loss) before income taxes is composed of the following:
1994 1993 1992
--------- --------- ----------
(In thousands)
United States................................................ $ 59,948 $ 74,279 $ 22,339
International................................................ 6,745 (11,550) (30,748)
--------- --------- ----------
Total .................................................... $ 66,693 $ 62,729 $ (8,409)
========= ========= ==========
F-16
52
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
The total provision for income taxes consists of the following:
For the Year Ended December 31,
------------------------------------
1994 1993 1992
-------- -------- --------
(In thousands)
Current taxes:
Federal ................... $ (3,890) $ 140 4,163
State ..................... 100 50 902
Foreign ................... 515 579 3,403
Deferred taxes ................. 24,385 20,539 (998)
-------- -------- --------
21,110 21,308 7,470
Cumulative effect of adoption of
SFAS No. 109 .............. -- (5,334) --
-------- -------- --------
$ 21,110 $ 15,974 $ 7,470
======== ======== ========
The 1993 provision for income taxes includes a $3.5 million charge for the
change in federal statutory rates from 34 percent to 35 percent enacted under
the Omnibus Budget Reconciliation Act of 1993 (OBRA). As discussed in the
Summary of Significant Accounting Policies, effective January 1, 1993, the
Company adopted SFAS No. 109 "Accounting for Income Taxes." The adoption of this
statement resulted in a one time benefit of $5.3 million which was recognized
in the first quarter of 1993.
The 1992 provision for income taxes includes approximately $1.2 million for
Apache's tax provision related to its share of NGC's partnership income. This
provision was reflected as a reduction of equity in income of affiliates in the
Statement of Consolidated Income.
A reconciliation of the federal statutory income tax amounts to the
effective amounts is as follows:
For the Year Ended
December 31,
---------------------------------------
1994 1993 1992
--------- --------- ---------
(In thousands)
Statutory income tax ............................. $ 23,343 $ 21,955 $ (2,859)
State income tax, less federal benefit ........... 1,013 965 1,426
Taxation of foreign operations ................... 1,486 969 (814)
Reversal of prior period timing differences
at rates in excess of current statutory rates -- -- (1,302)
Utilization of federal income tax credits ........ (1,545) (2,133) --
Increase in corporate income tax rate provided
for in OBRA ................................. -- 3,500 --
DEKALB income tax benefit limitation recorded
(reversed) .................................. (2,499) (1,769) 8,768
All other, net ................................... (688) (2,179) 2,251
--------- --------- ---------
$ 21,110 $ 21,308 $ 7,470
========= ========= =========
Deferred taxes are determined based on the estimated future tax effects
of differences between the financial statement and tax bases of assets and
liabilities using the provisions of enacted tax laws.
F-17
53
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
The net deferred tax liability as of December 31, 1994, is comprised of the
following:
December 31,
--------------------------
1994 1993
---------- ----------
(In thousands)
Deferred tax assets:
Accrued expenses ....................... $ (2,984) $ (8,696)
Deferred income ........................ (30,343) (3,287)
Deferred compensation .................. (1,927) (2,380)
Net operating loss carryforwards ....... (33,108) (25,593)
Alternative minimum tax credits ........ (20,792) (20,734)
Liabilities ............................ (2,717) (3,366)
Other .................................. (9,392) (6,018)
---------- ----------
Total deferred tax assets ......... (101,263) (70,074)
Valuation allowance ............................. 1,374 1,482
---------- ----------
Net deferred tax assets ......................... (99,889) (68,592)
---------- ----------
Deferred tax liabilities:
Depreciation, depletion and amortization 243,171 190,170
Other .................................. 7,934 4,300
---------- ----------
Total deferred tax liabilities .... 251,105 194,470
---------- ----------
Deferred income tax (asset) liability ........... $ 151,216 $ 125,878
========== ==========
U.S. deferred taxes have not been provided on foreign earnings totaling $58
million which are permanently reinvested abroad. Presently, limited foreign tax
credits are available to reduce the U.S. taxes on such amounts if repatriated.
At December 31, 1994, the Company has U.S. federal net operating loss
carryforwards of $58.4 million and statutory depletion carryforwards of $6.6
million available to reduce future U.S. federal taxable income. The net
operating loss carryforwards will expire unless otherwise utilized, beginning in
1995. The statutory depletion may be carried forward indefinitely. The Company
has alternative minimum tax (AMT) credit carryforwards of $20.8 million and
investment tax credits of approximately $1.4 million. AMT credits can be carried
forward indefinitely and may only be used to reduce regular tax liabilities in
excess of AMT liabilities. If the investment tax credits are not utilized, they
will expire by 2003. The Company also has foreign net operating loss
carryforwards of $22.2 million and foreign capital loss carryforwards of $8.4
million which may be carried forward indefinitely and may be utilized to reduce
future foreign taxable income.
5. ADVANCE FROM GAS PURCHASER
In December 1994, Apache received $67.4 million from a purchaser as an
advance payment for future natural gas deliveries of 20,000 MMBtu per day over a
six-year period commencing January 1995. As a condition of the arrangement with
the purchaser, Apache entered into a gas price swap contract with a third party
under which Apache became a fixed price payor at identical volumes and at prices
starting at $1.81 per MMBtu and escalating at $.10 per MMBtu per year through
the year 2000. In addition, the purchaser will pay to Apache a monthly fee of
$.05 per MMBtu on the contracted volumes. The net result of these related
transactions is that gas delivered to the purchaser will be reported as revenue
at prevailing spot prices in the future with Apache realizing a small premium
associated with the monthly fee to be paid by the purchaser. The Company,
through its marketing subsidiaries, may purchase gas from third parties to
satisfy gas delivery requirements of this arrangement. Contracted volumes
relating to this arrangement are included in the Company's Supplemental Oil and
Gas Disclosures.
The payment has been classified as an advance on the balance sheet as of
December 31, 1994, and will be reduced as gas is delivered to the
purchaser under the terms of the contract. Gas volumes delivered to the
purchaser will be reported as revenue at prices used to calculate the amount
advanced, before imputed interest, minus or plus amounts paid or received by
Apache applicable to the price swap agreement. Interest expense will be recorded
based on a 9 1/2-percent rate.
F-18
54
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
6. CAPITAL STOCK
COMMON STOCK OUTSTANDING
1994 1993 1992
---------- ---------- ----------
Balance, beginning of year ................. 69,504,310 55,361,438 55,305,357
Treasury shares issued (acquired), net ..... 129,852 119,087 19,791
Treasury shares acquired and retired ....... (192,808) (6,302) (27,488)
Shares issued:
Public offering ........................ -- 5,795,000 --
Acquisition of AERC .................... 2,974 305,003 --
Conversion of 7 1/2-percent debentures.. -- 7,816,453 --
Dividend reinvestment plan ............. 13,789 -- --
Stock options .......................... 207,975 113,631 61,655
Other .................................. -- -- 2,123
---------- ---------- ----------
Balance, end of year ....................... 69,666,092 69,504,310 55,361,438
========== ========== ==========
Public Offering -- In March 1993, Apache completed the public offering of
approximately 5.8 million shares of Apache common stock for net proceeds of
$131.8 million.
Stock Option Plans -- At December 31, 1994, common shares totaling
2,155,239 were reserved for issuance under stock option plans for officers and
key employees. The outstanding options expire at various dates through 2004 and
are exercisable at prices ranging from $2.39 to $26.875 with an aggregate
exercise price of $27.8 million. The following table summarizes the changes in
stock options for the year and the number of common shares available for grant
at year end:
1994 1993 1992
--------- --------- ----------
Outstanding, beginning of year ......... 1,178,505 1,173,158 934,210
Exercised ($1.14 to $26.625) ........... (207,975) (129,085) (123,830)
Granted ($13.12 to $26.875) ............ 546,984 355,505 519,377
Reissued ($14.83 to $26.875) ........... -- -- 12,160
Canceled or expired ($8.625 to $36.23).. (177,466) (221,073) (168,759)
--------- ---------- ----------
Outstanding, end of year ............... 1,340,048 1,178,505 1,173,158
========== ========== ==========
Available for grant, end of year ....... 815,191 1,241,460 1,375,891
========== ========== ==========
Rights to Purchase Common Stock -- In 1986, the Company declared a dividend
of one right to purchase one share of common stock at $50 per share (subject to
adjustment) on each outstanding share of common stock (the Rights). The Rights
are exercisable only if certain persons or groups acquire 20 percent or more of
the common stock or commence a tender offer for 30 percent or more of the common
stock. If the Company engages in certain business combinations or a 20-percent
stockholder engages in certain transactions with the Company, the Rights become
exercisable for Apache common stock or common stock of the corporation acquiring
the Company (as the case may be) at 50 percent of the then-market price. Any
Rights that are or were beneficially owned by a person who has acquired 20
percent or more of the common stock and who engages in certain transactions or
realizes the benefits of certain transactions with the Company will become void.
The Company may redeem the Rights at a specified price at any time until 10
business days after public announcement that a person has acquired 20 percent or
more of the outstanding shares of common stock. The Rights will expire on
January 31, 1996, unless earlier redeemed by the Company. Unless the Rights have
been previously redeemed, all shares of common stock issued by the Company will
include Rights.
Preferred Stock -- The Company has five million shares of no par preferred
stock authorized, of which none are outstanding.
F-19
55
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
7. NON-CASH INVESTING AND FINANCING ACTIVITIES
A summary of non-cash investing and financing activities is presented
below.
In 1993, Apache acquired Hadson Energy Resources Corporation (now AERC) for
approximately $98 million in cash and Apache common stock. The accompanying
financial statements include the following attributable to the acquisition:
(In thousands)
Value of properties acquired, including gathering facilities .... $ 159,996
Common stock issued (305,003 shares) ............................ (7,777)
Liability for AERC shares not surrendered as of December 31, 1993 (13,906)
Cash paid, net of cash acquired ................................. (70,692)
----------
Net AERC liabilities added through consolidation ................ $ 67,621
==========
During the first quarter of 1994, the Company issued 2,974 shares of Apache
common stock and paid $13.9 million for AERC shares which had not been
surrendered by the end of 1993.
In September 1993, Apache called for redemption of its 7 1/2-percent
convertible subordinated debentures due 2000. Following receipt of the notice of
redemption, nearly all holders of the debentures elected to convert the
principal amount of their debentures into shares of Apache common stock. Holders
of less than one-tenth of one percent of the debentures elected to receive cash
($.1 million).
(In thousands)
Long-term debt converted into common stock ................................. $ 149,900
Unamortized debt issue costs charged to equity ............................. (2,686)
---------
Increase to shareholders' equity (7.8 million shares of common stock issued) $ 147,214
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
For the Year Ended December 31,
-----------------------------------
1994 1993 1992
-------- -------- --------
(In thousands)
Cash paid (received) during the year for:
Interest, net of amounts capitalized . $ 30,909 $ 35,336 $ 34,120
Income and other taxes, net of refunds 6,874 (86) 20,355
F-20
56
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
8. FINANCIAL INSTRUMENTS AND OFF-BALANCE-SHEET RISK
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1994 and 1993.
1994 1993
------------------------ -----------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
--------- ---------- --------- ----------
(In thousands)
Cash and cash equivalents ................. $ 30,043 $ 30,043 $ 39,728 $ 39,728
Investment securities ..................... 7,242 7,422 -- --
Long-term debt:
Bank debt ............................. (490,022) (490,022) (287,213) (287,213)
9.25-percent notes due 2002 ........... (99,713) (100,213) (99,688) (100,311)
3.93-percent convertible notes due 1997 (75,000) (79,928) (75,000) (87,323)
9.875-percent notes due 2000 .......... (29,225) (29,079) (29,225) (31,563)
10-percent notes due 1998 ............. (22,100) (21,934) (22,100) (22,984)
Unrecognized financial instruments:
Interest rate swap .................... -- (181) -- --
Commodity price swaps ................. -- (1,190) -- 122
The following methods and assumptions were used to estimate the fair value
of the financial instruments summarized in the above table. The carrying values
of trade receivables and trade payables included in the accompanying
Consolidated Balance Sheet approximated market value at December 31, 1994 and
1993.
Cash and Cash Equivalents -- The carrying amounts approximated fair value
due to the short maturity of these instruments.
Investment Securities -- The fair value of investments are based on quoted
market prices.
Debt -- The fair value of the 9.25-percent notes was based on the quoted
market price for that issue, while the fair value of the 3.93-percent notes was
estimated based on quotes obtained from private investment firms. The fair
values of the 9.875-percent and 10-percent notes are based upon estimates
provided to the Company by independent sources. The difference between the
carrying amount and the fair value of the Company's other debt obligations was
not significant.
Interest Rate Instruments -- The Company periodically enters into various
financial instruments to manage its interest rate exposure. At December 31,
1994, the Company had one outstanding interest rate swap agreement with a
notional principal amount totaling $14 million. The notional amount reduces by
$2 million each quarter through July 1996, with interest fixed at 8.15 percent.
The fair value of the open interest rate swap was the estimated amount that
the Company would pay to terminate the swap agreement, taking into account
current interest rates and the credit worthiness of the swap counterparties.
F-21
57
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
Commodity Price Hedges -- The Company enters into certain commodity
derivative contracts to reduce the risk caused by fluctuations in the prices of
oil and natural gas. During the last three years, Apache has used swaps, puts
and fixed-price contracts to hedge its commodity prices. Apache's hedging
activities are primarily conducted with major investment and commercial banks
which the Company believes are minimal credit risks. The agreements call for
Apache to receive, or make, payments based upon the differential between a fixed
and a variable commodity price as specified in the contract.
At December 31, 1994, Apache's Consolidated Balance Sheet included deferred
credits totaling $.9 million for gains realized on the early termination of
commodity price hedges. The hedging gains will be amortized to oil and gas
production revenues over periods ranging from one to 38 months.
Apache entered into a swap agreement under which the Company will receive a
fixed price of $2.1825 per MMBtu and pay the floating price on 10,000 MMBtu per
day over a five-year period starting in January 1995. Based on the estimated
amount Apache would receive to terminate the swap agreement, the fair value of
this asset at December 31, 1994 was $3.3 million.
Apache also entered into a swap agreement, as discussed in Note 5, to
become a fixed price payor on 20,000 MMBtu per day over a six-year period
starting January 1995. The estimated amount Apache would have to pay to
terminate this contract at December 31, 1994 was $6.4 million.
Additionally, the Company had six differential and price swaps outstanding
at December 31, 1994, which were related to Canadian operations. The six swaps
in total related to production of 400 bopd of oil and 52 MMBtud of gas.
Unrealized profits on these contracts at year end, based upon prices in effect
at December 31, 1994, were approximately $1.9 million.
In connection with the purchase of MW Petroleum Corporation in mid-1991,
the Company and Amoco Production Company (Amoco) entered into a hedging
agreement. Under the terms of this agreement, Apache would receive support
payments in the event oil prices fell below specified reference prices for any
year during the two-year period ended June 30, 1993, and Amoco will receive
payments in the event oil prices rose above specified reference prices for any
year during the eight-year period ending June 30, 1999, or in the event gas
prices exceeded specified reference prices for any year during the five-year
period ending June 30, 1996. In the event price sharing payments are due to
Amoco, the volumes listed below would be doubled until Amoco recovers its net
payments to Apache ($5.8 million through the contract year ended June 30, 1994)
plus interest.
The notional volumes and the reference prices specified in the Amoco price
support agreement are summarized below:
Oil Gas
----------------- ---------------
Year Ended June 30: MMbbl Price Bcf Price
------------------- ----- ----- --- -----
1995......................... 2.8 $ 26.25 12.3 $ 2.45
1996......................... 2.4 27.80 10.5 2.68
1997......................... 2.0 29.48 -- --
1998......................... 1.7 31.25 -- --
1999......................... 1.4 33.12 -- --
Based on the Company's projection of oil and gas prices for the years noted
above, Apache will not be liable to Amoco for future price sharing payments.
F-22
58
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
Investment in Program Operations -- Prior to 1989, the Company organized
numerous oil and gas limited partnerships. At December 31, 1994, Apache was
contingently liable for $8.1 million of bank financing arranged by the Company
on behalf of the Apache Offshore Investment Partnership (See Note 3).
As compensation for its services as general partner and operator, the
Company shares in oil and gas revenues, receives a management fee in accordance
with formulas described in each limited partnership agreement, and is reimbursed
for administrative, exploration and production expenses incurred on behalf of
the partnerships. These reimbursements ($.5 million, $.6 million and $4.8
million in the years 1994, 1993 and 1992, respectively) have been netted against
operating expenses in the accompanying financial statements.
Litigation -- The Company is involved in litigation and is subject to
governmental and regulatory controls arising in the ordinary course of business.
It is the opinion of the Company's management that all claims and litigation
involving the Company are not likely to have a material adverse effect on its
financial position or results of operations.
Environmental -- Apache, as an owner and operator of oil and gas
properties, is subject to various federal, state, local and foreign country laws
and regulations relating to discharge of materials into, and protection of, the
environment. These laws and regulations may, among other things, impose
liability on the lessee under an oil and gas lease for the cost of pollution
clean-up resulting from operations, subject the lessee to liability for
pollution damages, require suspension or cessation of operations in affected
areas and impose restrictions on the injection of liquids into subsurface
aquifers that may contaminate ground water. Apache maintains insurance coverage
which it believes are customary in the industry, although it is not fully
insured against all environmental risks. The Company is not aware of any
environmental claims existing as of December 31, 1994, which would have a
material impact on its financial position or results of operations.
International Commitments -- The Company, through its subsidiaries, has
acquired or has been conditionally or unconditionally granted exploration rights
in Australia, The Congo, Egypt, China, Indonesia and the Ivory Coast. In order
to comply with the contracts and agreements granting these rights, the Company,
through various wholly-owned subsidiaries, is committed to expend approximately
$50 million through 1997.
Retirement and Deferred Compensation Plans -- The Company provides a
retirement/401(k) savings plan and a non-qualified retirement/savings plan for
employees. These plans allow participating employees to elect to contribute up
to 10 percent of their salaries, with Apache making matching contributions up to
a maximum of six percent of each employee's salary. In addition, the Company
annually contributes a percentage of each participating employee's compensation,
as defined, to the plan. Vesting in the Company's contributions occurs at the
rate of 20 percent per year. Additionally, DEKALB maintains a separate
retirement plan. Total expenses under all plans were $5.8 million, $5.6 million
and $6.7 million for 1994, 1993 and 1992, respectively. The unfunded liability
for all plans has been accrued in the consolidated balance sheet.
F-23
59
APACHE CORPORATION SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
Lease Commitments -- The Company has leases for office space and equipment
with varying expiration dates through 2007. Net rental expense was $4.4 million,
$5.0 million and $6.8 million for 1994, 1993 and 1992, respectively.
As of December 31, 1994, minimum rental commitments under long-term
operating leases and long-term pipeline transportation commitments, ranging
from 15 to 30 years, are as follows:
Net
Minimum Pipeline Net
Rental Sublease Rental Transportation Minimum
Commitments Rentals Commitments Commitments Commitments
----------- ------- ----------- ----------- -----------
(In thousands)
1995 ..... $ 7,134 $ (1,355) $ 5,779 $ 3,905 $ 9,684
1996 ..... 7,239 (1,396) 5,843 3,092 8,935
1997 ..... 5,579 (582) 4,997 3,013 8,010
1998 ..... 5,385 -- 5,385 2,835 8,220
1999 ..... 5,831 -- 5,831 2,816 8,647
Thereafter 37,281 -- 37,281 55,157 92,438
--------- --------- --------- --------- ---------
$ 68,449 $ (3,333) $ 65,116 $ 70,818 $ 135,934
========= ========= ========= ========= =========
10. CUSTOMER INFORMATION
Major Purchasers -- NGC has been the principal purchaser of Apache's spot
market gas production since April 1990. Sales to NGC accounted for 40 percent,
36 percent and 27 percent of the Company's oil and gas revenues in 1994, 1993
and 1992, respectively. Sales to Amoco represented 12 percent and 27 percent of
the Company's 1993 and 1992 oil and gas revenues, respectively, and were less
than 10 percent for 1994.
Concentration of Credit Risk -- The Company's revenues are derived
principally from uncollateralized sales to customers in the oil and gas
industry; therefore, customers may be similarly affected by changes in economic
and other conditions within the industry. Apache has not experienced significant
credit losses on such sales. The Company believes that if the NGC contract was
terminated, it would not have a material adverse effect on the Company due to
the existence of alternative marketing arrangements and purchasers.
The proved gas reserves in the Carnarvon Basin of Western Australia
acquired in the AERC acquisition are dedicated for sale to the Gas Corporation
of Western Australia, a corporation owned by the government of Western Australia
doing business as AlintaGas (formerly the State Energy Commission of Western
Australia or SECWA), pursuant to a long-term, take-or-pay contract. If the
AlintaGas contract were terminated, the Company might not be able to find other
markets for the gas produced from these fields. Although the Company considers
such an occurrence highly unlikely, the loss of the AlintaGas contract might
force the Company to write-down the carrying value of these fields.
F-24
60
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
11. BUSINESS SEGMENT INFORMATION
The Company's operations are primarily natural gas and crude oil
exploration and production related. Accordingly, such operations are classified
as one business segment. Financial information by geographic area is presented
below:
1994 1993 1992
---------- ---------- ----------
(In thousands)
Gross Operating Revenues
United States............................ $ 518,735 $ 450,517 $ 438,014
Canada................................... 47,005 45,994 37,660
Other International...................... 26,427 15,497 8,019
Equity in income of affiliates and gain
on sale of investment in affiliate....... 459 624 33,710
----------- ----------- -----------
Total Revenues............................. $ 592,626 $ 512,632 $ 517,403
=========== =========== ===========
Operating Income (Loss)
United States............................ $ 119,764 $ 130,008 $ 62,783
Canada................................... 20,748 18,385 (15,386)
Other International...................... (806) (18,982) (9,464)
----------- ----------- ----------
Operating Income (loss).................... 139,706 129,411 37,933
Equity in income of affiliates and gain
on sale of investment in affiliate....... 459 624 33,710
Administrative, selling and other.......... (38,729) (36,629) (40,599)
Financing costs............................ (34,743) (30,677) (39,453)
----------- ----------- ----------
Income (loss) before income taxes.......... $ 66,693 $ 62,729 $ (8,409)
=========== =========== ===========
Identifiable Assets
United States............................ $ 1,717,058 $ 1,460,267 $ 1,567,548
Canada................................... 196,589 187,574 189,198
Other International...................... 122,980 111,362 18,021
----------- ----------- -----------
Total............................... $ 2,036,627 $ 1,759,203 $ 1,774,767
=========== =========== ===========
F-25
61
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DISCLOSURES
(UNAUDITED)
Oil and Gas Operations -- The following table sets forth revenue and direct
cost information relating to the Company's oil and gas exploration and
production activities. Apache has no long-term agreements to purchase oil or gas
production from foreign governments or authorities.
For the Year Ended December 31,
-------------------------------------------
1994 1993 1992
----------- ----------- -----------
(In thousands)
UNITED STATES
Oil and gas revenues ........................ $ 467,161 $ 421,845 $ 409,298
------------ ------------ ------------
Operating costs:
Depreciation, depletion and amortization 222,935 170,128 159,438
Impairments ............................ -- -- 24,728
(Gain) loss on disposal of assets....... -- (513) 34,942
Lease operating ........................ 107,361 102,830 107,152
Production taxes ....................... 22,280 21,218 23,803
Income tax ............................. 44,821 50,215 20,098
------------ ------------ ------------
397,397 343,878 370,161
------------ ------------ ------------
Results of operations ....................... $ 69,764 $ 77,967 $ 39,137
============ ============ ============
Amortization rate per boe - recurring ....... $ 5.88 $ 5.61 $ 5.30
============ ============ ============
CANADA
Oil and gas revenues ........................ $ 44,889 $ 44,506 $ 36,518
------------ ------------ ------------
Operating costs:
Depreciation, depletion and amortization 14,603 15,142 12,839
Impairments ............................ -- -- 28,592
Lease operating ........................ 11,654 12,467 11,615
Income tax (benefit) ................... 8,833 8,164 (6,689)
------------ ------------ ------------
35,090 35,773 46,357
------------ ------------ ------------
Results of operations ....................... $ 9,799 $ 8,733 $ (9,839)
============ ============ ============
Amortization rate per boe - recurring ....... $ 3.34 $ 3.38 $ 3.41
============ ============ ============
OTHER INTERNATIONAL
Oil and gas revenues ........................ $ 26,339 $ 15,497 $ 8,019
------------ ------------ ------------
Operating costs:
Depreciation, depletion and amortization 11,754 7,214 3,883
Impairments ............................ 7,300 23,200 12,000
Lease operating ........................ 6,257 3,456 1,600
Production taxes ....................... 1,922 609 --
Income tax (benefit) ................... (295) (6,264) (3,181)
------------ ------------ ------------
26,938 28,215 14,302
------------ ------------ ------------
Results of operations ....................... $ (599) $ (12,718) $ (6,283)
============ ============ ============
Amortization rate per boe - recurring ....... $ 7.15 $ 8.00 $ 9.96
============ ============ ============
TOTAL
Oil and gas revenues ........................ $ 538,389 $ 481,848 $ 453,835
------------ ------------ ------------
Operating costs:
Depreciation, depletion and amortization 249,292 192,484 176,160
Impairments ............................ 7,300 23,200 65,320
(Gain) loss on disposal of assets....... -- (513) 34,942
Lease operating ........................ 125,272 118,753 120,367
Production taxes ....................... 24,202 21,827 23,803
Income tax ............................. 53,359 52,115 10,228
------------ ------------ ------------
459,425 407,866 430,820
------------ ------------ ------------
Results of operations ....................... $ 78,964 $ 73,982 $ 23,015
============ ============ ============
F-26
62
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED)
(UNAUDITED)
Costs Not Being Amortized -- The following table sets forth a summary of
oil and gas property costs not being amortized at December 31, 1994, by the year
in which such costs were incurred.
1991 and
Total 1994 1993 1992 Prior
------- --------- --------- ---------- ---------
(In thousands)
Leasehold and seismic................................ $102,466 $ 38,220 $ 28,828 $ 2,931 $ 32,487
Exploration and development.......................... 9,206 9,206 -- -- --
International........................................ 45,707 30,117 14,181 990 419
-------- --------- --------- --------- ---------
Total................................................ $157,379 $ 77,543 $ 43,009 $ 3,921 $ 32,906
======== ========= ========= ========= =========
Capitalized Costs Incurred -- The following table sets forth the
capitalized costs incurred in oil and gas producing activities.
For the Year Ended December 31,
---------------------------------------
1994 1993 1992
--------- --------- ---------
(In thousands)
UNITED STATES
Acquisition of proved properties . $ 179,972 $ 242,659 $ 62,955
Acquisition of unproved properties 32,526 14,342 8,226
Exploration ...................... 16,722 16,979 19,723
Development ...................... 216,451 164,839 96,638
Capitalized interest ............. 4,889 4,764 6,035
Property sales ................... (5,854) (9,430) (142,098)
--------- --------- ---------
444,706 434,153 51,479
--------- --------- ---------
CANADA
Acquisition of proved properties . 770 2,075 1,912
Acquisition of unproved properties 7,337 2,686 906
Exploration ...................... 13,399 8,168 5,060
Development ...................... 19,714 6,532 3,143
Capitalized interest ............. 1,145 1,515 2,961
Property sales ................... (13,671) (912) --
--------- --------- ---------
28,694 20,064 13,982
--------- --------- ---------
OTHER INTERNATIONAL
Acquisition of proved properties*. -- 81,942 --
Exploration ...................... 30,089 18,006 10,091
Development ...................... 1,853 -- 1,988
--------- --------- ---------
31,942 99,948 12,079
--------- --------- ---------
TOTAL
Acquisition of proved properties . 180,742 326,676 64,867
Acquisition of unproved properties 39,863 17,028 9,132
Exploration ...................... 60,210 43,153 34,874
Development ...................... 238,018 171,371 101,769
Capitalized interest ............. 6,034 6,279 8,996
Property sales ................... (19,525) (10,342) (142,098)
--------- --------- ---------
$ 505,342 $ 554,165 $ 77,540
========= ========= =========
- ------------------
* International acquisitions in 1993 included $16.8 million of unevaluated costs
added through the merger of AERC.
F-27
63
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED)
(UNAUDITED)
Capitalized Costs -- The following table sets forth the capitalized costs
and related accumulated depreciation, depletion and amortization, including
impairments, relating to the Company's oil and gas production, exploration and
development activities.
December 31,
---------------------------
1994 1993
---------- -----------
(In thousands)
UNITED STATES
Proved properties........................................................... $2,810,670 $ 2,390,644
Unproved properties......................................................... 111,672 86,992
----------- -----------
2,922,342 2,477,636
Accumulated depreciation, depletion and amortization........................ (1,437,540) (1,214,605)
----------- -----------
1,484,802 1,263,031
CANADA
Proved properties........................................................... 312,649 298,235
Unproved properties......................................................... 11,454 9,048
----------- -----------
324,103 307,283
Accumulated depreciation, depletion and amortization........................ (139,555) (130,079)
----------- -----------
184,548 177,204
----------- -----------
OTHER INTERNATIONAL
Proved properties........................................................... 142,451 126,157
Unproved properties......................................................... 34,253 18,605
----------- -----------
176,704 144,762
Accumulated depreciation, depletion and amortization........................ (79,270) (60,216)
----------- -----------
97,434 84,546
----------- -----------
TOTAL
Proved properties........................................................... 3,265,770 2,815,036
Unproved properties......................................................... 157,379 114,645
----------- -----------
3,423,149 2,929,681
Accumulated depreciation, depletion and amortization........................ (1,656,365) (1,404,900)
----------- -----------
$ 1,766,784 $ 1,524,781
=========== ===========
Oil and Gas Reserve Information - Proved oil and gas reserve quantities are
based on estimates prepared by the Company's engineers in accordance with
guidelines established by the Securities and Exchange Commission (SEC). The
Company's estimates of proved reserve quantities of its U.S., Canadian and
certain international properties are subject to review by Ryder Scott Company
Petroleum Engineers, independent petroleum engineers. Other international proved
reserves, for all periods presented below are located in Australia.
There are numerous uncertainties inherent in estimating quantities of
proved reserves and projecting future rates of production and timing of
development expenditures. The following reserve data represents estimates only
and should not be construed as being exact.
F-28
64
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED)
(UNAUDITED)
Crude Oil, Condensate and Natural Gas Liquids
---------------------------------------------------
(In thousands of barrels)
United Other
States Canada International Total
------ ------ ------------- -----
Total proved reserves:
Balance December 31, 1991 ................... 90,859 14,384 648 105,891
Extensions, discoveries and other additions 7,112 227 -- 7,339
Purchases of minerals in-place ............ 226 382 -- 608
Revisions of previous estimates ........... 7,796 (12) 206 7,990
Production ................................ (12,964) (997) (390) (14,351)
Sales of properties ....................... (12,834) -- -- (12,834)
------- ------ ------ -------
Balance December 31, 1992 ................... 80,195 13,984 464 94,643
Extensions, discoveries and other additions 10,885 397 -- 11,282
Purchases of minerals in-place ............ 9,871 188 5,095 15,154
Revisions of previous estimates ........... (3,215) (300) 1,125 (2,390)
Production ................................ (12,096) (989) (684) (13,769)
Sales of properties ....................... (1,917) (46) -- (1,963)
------- ------ ------ -------
Balance December 31, 1993 ................... 83,723 13,234 6,000 102,957
Extensions, discoveries and other additions 9,669 690 349 10,708
Purchases of minerals in-place ............ 9,232 83 -- 9,315
Revisions of previous estimates ........... 5,347 (2,239) 273 3,381
Production ................................ (12,418) (962) (1,159) (14,539)
Sales of properties ....................... (1,108) (90) -- (1,198)
------- ------ ------ -------
Balance December 31, 1994 ................... 94,445 10,716 5,463 110,624
======= ====== ====== =======
Proved developed reserves:
December 31, 1991 ........................... 79,296 14,371 648 94,315
December 31, 1992 ........................... 72,596 13,972 464 87,032
December 31, 1993 ........................... 74,288 13,221 5,113 92,622
December 31, 1994 ........................... 84,085 10,612 5,322 100,019
Natural Gas
----------------------------------------------------
(Millions of cubic feet)
United Other
States Canada International Total
------ ------ ------------- -----
Total proved reserves:
Balance December 31, 1991 ................... 682,512 280,730 -- 963,242
Extensions, discoveries and other additions 69,985 5,904 -- 75,889
Purchases of minerals in-place ............ 68,685 1,617 -- 70,302
Revisions of previous estimates ........... 30,256 4,812 -- 35,068
Production ................................ (102,653) (16,633) -- (119,286)
Sales of properties ....................... (105,486) (87) -- (105,573)
-------- ------- ------ ---------
Balance December 31, 1992 ................... 643,299 276,343 -- 919,642
Extensions, discoveries and other additions 119,210 19,094 -- 138,304
Purchases of minerals in-place ............ 174,115 4,405 33,343 211,863
Revisions of previous estimates ........... (7,335) 2,198 1,327 (3,810)
Production ................................ (109,312) (20,969) (1,310) (131,591)
Sales of properties ....................... (5,118) (3,660) -- (8,778)
-------- ------- ------ ---------
Balance December 31, 1993 ................... 814,859 277,411 33,360 1,125,630
Extensions, discoveries and other additions 190,386 44,912 408 235,706
Purchases of minerals in-place ............ 158,309 2,710 -- 161,019
Revisions of previous estimates ........... (21,937) 6,880 1,114 (13,943)
Production ................................ (152,994) (20,491) (2,911) (176,396)
Sales of properties ....................... (4,335) (11,526) -- (15,861)
-------- ------- ------ ---------
Balance December 31, 1994 ................... 984,288 299,896 31,971 1,316,155
======== ======= ====== =========
Proved developed reserves:
December 31, 1991 ........................... 623,704 267,391 -- 891,095
December 31, 1992 ........................... 585,424 263,305 -- 848,729
December 31, 1993 ........................... 696,421 263,070 24,251 983,742
December 31, 1994 ........................... 888,039 274,611 22,265 1,184,915
F-29
65
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED)
(UNAUDITED)
Future Net Cash Flows -- Future revenues are based on year-end prices
except in those instances where the sale of natural gas is covered by contract
terms providing for determinable escalations. Operating costs, production and ad
valorem taxes and future development costs are based on current costs with no
escalation.
The following table sets forth unaudited information concerning future net
cash flows for oil and gas reserves, net of income tax expense. Income tax
expense has been computed using expected future tax rates and giving effect to
permanent differences and credits which, under current laws, relate to oil and
gas producing activities. This information does not purport to present the fair
market value of the Company's oil and gas assets, but does present a
standardized disclosure concerning possible future net cash flows that would
result under the assumptions used.
December 31,
----------------------------------------------------
1994 1993 1992
-------------- -------------- --------------
(In thousands)
UNITED STATES
Cash inflows .................... $ 3,401,300 $ 3,062,525 $ 2,798,223
Production and development costs (1,294,801) (1,085,205) (1,047,958)
Income tax expense .............. (376,932) (362,353) (338,177)
-------------- -------------- --------------
Net cash flows .................. 1,729,567 1,614,967 1,412,088
10-percent annual discount rate . (628,408) (550,887) (543,419)
-------------- -------------- --------------
Discounted future net cash flows 1,101,159 1,064,080 868,669
-------------- -------------- --------------
CANADA
Cash inflows (1) ................ 536,463 672,023 648,061
Production and development costs (156,589) (155,238) (194,259)
Income tax expense .............. (119,766) (135,319) (91,740)
-------------- -------------- --------------
Net cash flows .................. 260,108 381,466 362,062
10-percent annual discount rate . (100,532) (179,046) (201,572)
-------------- -------------- --------------
Discounted future net cash flows 159,576 202,420 160,490
-------------- -------------- --------------
OTHER INTERNATIONAL
Cash inflows .................... 163,303 154,466 9,231
Production and development costs (68,217) (57,281) (5,903)
Income tax expense .............. (27,910) (24,680) (588)
-------------- -------------- --------------
Net cash flows .................. 67,176 72,505 2,740
10-percent annual discount rate . (15,366) (21,209) (26)
-------------- -------------- --------------
Discounted future net cash flows 51,810 51,296 2,714
-------------- -------------- --------------
TOTAL
Cash inflows .................... 4,101,066 3,889,014 3,455,515
Production and development costs (1,519,607) (1,297,724) (1,248,120)
Income tax expense .............. (524,608) (522,352) (430,505)
-------------- -------------- --------------
Net cash flows .................. 2,056,851 2,068,938 1,776,890
10-percent annual discount rate . (744,306) (751,142) (745,017)
-------------- -------------- --------------
Discounted future net cash
flows (2) ...................... $ 1,312,545 $ 1,317,796 $ 1,031,873
============== ============== ==============
- -----------------
(1) Included in cash inflows is approximately $25.7 million, $39.4 million and
$45.6 million ($9.8 million, $12.0 million and $14.1 million after discount
at 10 percent per annum) for 1994, 1993 and 1992, respectively, of Canadian
provincial tax credits expected to be realized beyond the date at which the
legislation, under its provisions, could be repealed.
(2) Estimated future net cash flows before income tax expense, discounted 10
percent, totaled approximately $1.60 billion, $1.63 billion and $ 1.27
billion as of December 31, 1994, 1993 and 1992, respectively.
F-30
66
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED)
(UNAUDITED)
The following table sets forth the principal sources of change in the
discounted future net cash flows:
For the Year Ended December 31,
-------------------------------------
1994 1993 1992
-------- --------- ---------
(In thousands)
Sales, net of production costs ........................ $(388,915) $(341,268) $(309,665)
Net change in prices and production costs ............. (173,059) (25,742) 3,496
Discoveries and improved recovery, net of related costs 211,358 227,500 121,765
Change in future development costs .................... 24,065 2,236 12,530
Revision of quantities ................................ 13,167 (26,752) 80,381
Purchases ............................................. 165,273 352,918 102,541
Accretion of discount ................................. 159,302 124,599 116,839
Change in income taxes ................................ 16,517 (67,242) (24,534)
Sales of properties ................................... (21,497) (7,698) (135,733)
Change in production rates and other .................. (11,462) 47,372 (30,351)
--------- --------- ---------
$ (5,251) $ 285,923 $ (62,731)
========= ========= =========
Impact of Pricing -- The estimates of cash flows and reserve quantities
shown above are based on year-end oil and gas prices, except in those cases
where future gas sales are covered by contracts at specified prices. Estimates
of future liabilities and receivables applicable to oil and gas commodity hedges
are reflected in future cash flows from proved reserves with such estimates
based on prices in effect as of the date of the reserve report. Fluctuations are
largely due to supply and demand perceptions for natural gas and volatility in
oil prices.
Under SEC rules, companies that follow full cost accounting methods are
required to make quarterly "ceiling test" calculations. Under this test,
capitalized costs of oil and gas properties may not exceed the present value of
estimated future net revenues from proved reserves, discounted at 10 percent,
plus the lower of cost or fair market value of unproved properties, as adjusted
for related tax effects and deferred tax reserves. Application of these rules
during periods of relatively low oil and gas prices, even if of short-term
duration, may result in write-downs.
Many full cost companies, including Apache, are concerned about the impact
of prolonged unfavorable gas prices on their ceiling test calculations. A
further deterioration of gas or oil prices from year-end levels would likely
result in the Company recording a non-cash charge to earnings related to its oil
and gas properties in 1995. SEC rules permit the exclusion of capitalized costs
and present value of recently acquired properties in performing ceiling test
calculations. Pursuant to these rules, Apache has requested waivers and the SEC
has granted one-year waivers with respect to the properties acquired from Texaco
and Crystal. If the ceiling is exceeded on all U.S. properties, Apache will be
required to perform an additional ceiling test excluding the Texaco and Crystal
properties and record a write-down of carrying value if the ceiling is still
exceeded.
F-31
67
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL QUARTERLY FINANCIAL DATA
(UNAUDITED)
First Second Third Fourth Total
--------- --------- --------- --------- ---------
(In thousands, except per share amounts)
1994
Revenues .................. $ 132,721 $ 147,054 $ 152,971 $ 159,880 $ 592,626
Expenses, net ............. 124,496 134,147 140,582 147,818 547,043
--------- --------- --------- --------- ---------
Net income ................ $ 8,225 $ 12,907 $ 12,389 $ 12,062 $ 45,583
========= ========= ========= ========= =========
Net income per common
share ................... $ .12 $ .19 $ .18 $ .17 $ .65
========= ========= ========= ========= =========
1993
Revenues .................. $ 120,419 $ 123,219 $ 132,258 $ 136,736 $ 512,632
Expenses, net ............. 106,238 109,637 132,274 123,062 471,211
--------- --------- --------- --------- ---------
Income before cumulative
effect of change in
accounting principle .... 14,181 13,582 (16) 13,674 41,421
Cumulative effect of
change in accounting
principle ............... 5,334 -- -- -- 5,334
--------- --------- --------- --------- ---------
Net income (loss) ......... $ 19,515 $ 13,582 $ (16) $ 13,674 $ 46,755
========= ========= ========= ========= =========
Income before cumulative
effect of change in
accounting principle
per common share ........ $ .25 $ .22 $ -- $ .20 $ .67
========= ========= ========= ========= =========
Net income per common
share ................... $ .35 $ .22 $ -- $ .20 $ .75
========= ========= ========= ========= =========
- ---------------
The sum of the individual quarterly earnings per share may not agree with
year-to-date earnings per share as each period's computation is based on the
weighted average number of common shares outstanding during that period.
F-32
68
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL QUARTERLY FINANCIAL DATA -- (Continued)
(UNAUDITED)
The quarterly data shown above was restated to combine the operations
of DEKALB with Apache in accordance with the "pooling of interests" method of
accounting. Additionally, as described in Note 1 to the consolidated financial
statements, conforming adjustments relative to DD&A and income taxes were made
along with certain reclassifications. A reconciliation of the separate
results, as previously reported in Apache's and DEKALB's quarterly reports on
Form 10-Q, to the combined results is as follows:
First Second Third Fourth Total
-------- -------- ---------- ---------- -----------
1994 (In thousands, except per share data)
----
Revenues:
Apache $121,591 $ 134,947 $ 140,765 $ 148,318 $ 545,621
DEKALB 11,130 12,107 12,206 10,847 46,290
Reclassification to
conform presentation - - - 715 715
-------- -------- ---------- ---------- -----------
$132,721 $147,054 $ 152,971 $ 159,880 $ 592,626
======== ======== ========== ========== ===========
Income (loss) from
continuing operations:
Apache $ 9,407 $ 10,196 $ 10,574 $ 12,660 $ 42,837
DEKALB 1,750 2,416 1,890 757 6,813
Conforming adjustments (2,932) 295 (75) (1,355) (4,067)
-------- -------- ---------- ---------- -----------
$ 8,225 $ 12,907 $ 12,389 $ 12,062 $ 45,583
======== ======== ========== ========== ===========
Net income (loss):
Apache $ 9,407 $ 10,196 $ 10,574 $ 12,660 $ 42,837
DEKALB 1,750 2,416 1,890 757 6,813
Conforming adjustments (2,932) 295 (75) (1,355) (4,067)
-------- -------- ---------- ---------- -----------
$ 8,225 $ 12,907 $ 12,389 $ 12,062 $ 45,583
======== ======== ========== ========== ===========
Income (loss) per common
share from continuing
operations:
Apache $ .15 $ .17 $ .17 $ .21 $ .70
-------- -------- ---------- ---------- -----------
DEKALB $ .18 $ .25 $ .20 $ .08 $ .71
-------- -------- ---------- ---------- -----------
As combined $ .16 $ .19 $ .18 $ .19 $ .71
Conforming adjustments $ (.04) $ - $ - $ (.02) $ (.06)
-------- -------- ---------- ---------- -----------
$ .12 $ .19 $ .18 $ .17 $ .65
======== ======== ========== ========== ===========
Net income (loss)
per common share:
Apache $ .15 $ .17 $ .17 $ .21 $ .70
-------- -------- ---------- ---------- -----------
DEKALB $ .18 $ .25 $ .20 $ .08 $ .71
-------- -------- ---------- ---------- -----------
As combined $ .16 $ .19 $ .18 $ .19 $ .71
Conforming adjustments (.04) $ - $ - $ (.02) $ (.06)
-------- -------- ---------- ---------- -----------
$ .12 $ .19 $ .18 $ .17 $ .65
======== ======== ========== ========== ===========
F-33
69
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL QUARTERLY FINANCIAL DATA -- (Continued)
(UNAUDITED)
First Second Third Fourth Total
-------- -------- -------- -------- --------
1993 (In thousands, except per share data)
----
Revenues:
Apache $108,592 $111,270 $122,013 $124,763 $466,638
DEKALB 11,827 11,949 10,245 11,882 45,903
Reclassification to
conform presentation - - - 91 91
-------- -------- -------- -------- --------
$120,419 $123,219 $132,258 $136,736 $512,632
======== ======== ======== ======== ========
Income (loss) from
continuing operations:
Apache $ 11,592 $ 11,495 $ 1,081 $ 13,166 $ 37,334
DEKALB 1,413 1,336 1,074 1,849 5,672
Conforming adjustments 1,176 751 (2,171) (1,341) (1,585)
-------- -------- -------- -------- --------
$ 14,181 $ 13,582 $ (16) $ 13,674 $ 41,421
======== ======== ======== ======== ========
Net income (loss):
Apache $ 11,592 $ 11,495 $ 1,081 $ 13,166 $ 37,334
DEKALB 6,747 1,336 1,074 1,849 11,006
Conforming adjustments 1,176 751 (2,171) (1,341) (1,585)
-------- -------- -------- -------- --------
$ 19,515 $ 13,582 $ (16) $ 13,674 $ 46,755
======== ======== ======== ======== ========
Income (loss) per common
share from continuing
operations:
Apache $ .24 $ .22 $ .02 $ .22 $ .70
-------- -------- -------- -------- --------
DEKALB $ .15 $ .14 $ .11 $ .19 $ .59
-------- -------- -------- -------- --------
As combined $ .23 $ .21 $ .03 $ .22 $ .70
Conforming adjustments .02 $ .01 $ (.03) $ (.02) $ (.03)
-------- -------- -------- -------- --------
$ .25 $ .22 $ -- $ .20 $ .67
======== ======== ======== ======== ========
Net income (loss)
per common share:
Apache $ .24 $ .22 $ .02 $ .22 $ .70
-------- -------- -------- -------- --------
DEKALB * $ .70 $ .14 $ .11 $ .19 $ 1.14
-------- -------- -------- -------- --------
As combined $ .33 $ .21 $ .03 $ .22 $ .78
Conforming adjustments .02 $ .01 $ (.03) $ (.02) $ (.03)
-------- -------- -------- -------- --------
$ .35 $ .22 $ -- $ .20 $ .75
======== ======== ======== ======== ========
* The first quarter of 1993 includes a one time benefit of $5.3 million as a
result of the adoption of SFAS No. 109 "Accounting for Income Taxes" as of
January 1, 1993.
F-34
70
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 -- Stock Purchase Agreement, dated July 1, 1991, between
Registrant and Amoco Production Company (incorporated
by reference to Exhibit 10.1 to Registrant's Current
Report on Form 8-K, dated July 1, 1991, SEC File No.
1-4300, filed July 19, 1991).
2.2 -- Purchase and Sale Agreement between Hall-Houston Oil
Company, as seller, and Registrant, as buyer, dated as
of June 2, 1993 (incorporated by reference to Exhibit
10.1 to Registrant's Current Report on Form 8-K, dated
August 31, 1993, SEC File No. 1-4300, filed September
7, 1993).
2.3 -- Purchase and Sale Agreement between Hall-Houston Oil
Company, as seller, and Registrant, as buyer, dated as
of August 13, 1993 (incorporated by reference to
Exhibit 10.2 to Registrant's Current Report on Form
8-K, dated August 31, 1993, SEC File No. 1-4300, filed
September 7, 1993).
2.4 -- Form of Acquisition Agreement between Registrant, HERC
Acquisition Corporation and Hadson Energy Resources
Corporation, dated August 26, 1993, and amended
September 28, 1993 (incorporated by reference to
Exhibit 2.1 to Registrant's Registration Statement on
Form S-4, Registration No. 33-67954, filed September
29, 1993).
2.5 -- Purchase and Sale Agreement by and between Texaco
Exploration and Production Inc., as seller, and
Registrant, as buyer, dated December 22, 1994
(incorporated by reference to Exhibit 99.3 to
Registrant's Current Report on Form 8-K, dated November
29, 1994, SEC File No. 1-4300, filed December 29,
1994).
2.6 -- Amended and Restated Agreement and Plan of Merger among
Registrant, XPX Acquisitions, Inc. and DEKALB Energy
Company, dated December 21, 1994 (incorporated by
reference to Exhibit 2.1 to Amendment No. 3 to
Registrant's Registration Statement on Form S-4,
Registration No. 33-57321, filed April 14, 1995).
2.7 -- Matagorda Island 681 Field Purchase and Sale Agreement
with Option to Exchange, dated November 24, 1992,
between Shell Offshore Inc., SOI Royalties Inc., and
Registrant (incorporated by reference to Exhibit 10.7
to Apache Offshore Investment Partnership's Annual
Report on Form 10-K for year ended December 31, 1992,
SEC File No. 0-13546).
3.1 -- Restated Certificate of Incorporation of Registrant,
dated December 1, 1993, as filed with the Secretary of
State of Delaware on December 16, 1993 (incorporated by
reference to Exhibit 3.1 to Registrant's Annual Report
on Form 10-K for year ended December 31, 1993, SEC File
No. 1-4300).
3.2 -- Bylaws of Registrant, dated as of December 9, 1992
(incorporated by reference to Exhibit 3.3 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1992, SEC File No. 1-4300).
4.1 -- Form of common stock certificate (incorporated by
reference to Exhibit 4.4 to Amendment No. 1 to
Registrant's Registration Statement on Form S-3,
Registration No. 33-5097, filed May 16, 1986).
71
EXHIBIT INDEX - (Continued)
EXHIBIT NO. DESCRIPTION
----------- -----------
4.2 -- Rights Agreement, dated as of January 10, 1986, between
Registrant and First Trust Company, Inc., rights agent,
relating to the declaration of Rights to Registrant's
common stockholders of record on January 24, 1986
(incorporated by reference to Exhibit 4.9 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1985, SEC File No. 1-4300).
10.1 -- Second Amended and Restated Credit Agreement, dated
April 30, 1994, among Registrant, the lenders named
therein, and The First National Bank of Chicago and
Chemical Bank, as agents (incorporated by reference to
Exhibit 10.1 to Registrant's Quarterly Report on Form
10-Q for quarter ended June 30, 1994, SEC File No.
1-4300).
10.2 -- Third Amended and Restated Credit Agreement, dated
March 1, 1995, among Registrant, the lenders named
therein, and The First National Bank of Chicago, as
Administrative Agent and Arranger, and Chemical Bank,
as Co-Agent and Arranger (incorporated by reference to
Exhibit 10.2 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1994, SEC File No. 1-4300).
10.3 -- Fiscal Agency Agreement, dated as of January 4, 1995,
between Registrant and Chemical Bank, as fiscal agent
(incorporated by reference to Exhibit 99.2 to
Registrant's Current Report on Form 8-K, dated December
6, 1994, SEC File No. 1-4300, filed January 11, 1995.)
+10.4 -- 1982 Employee Stock Option Plan, as updated in January
1987 to conform to the Tax Reform Act of 1986
(incorporated by reference to Exhibit 10.7 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1990, SEC File No. 1-4300).
+10.5 -- Apache Corporation Corporate Administrative Group
Incentive Plan, effective as of January 1, 1989
(incorporated by reference to Exhibit 10.8 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1990, SEC File No. 1-4300).
+10.6 -- First Amendment to Apache Corporation Corporate
Administrative Group Incentive Plan, effective January
1, 1990 (incorporated by reference to Exhibit 10.14 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1993, SEC File No. 1-4300).
+10.7 -- Apache Corporation Retirement/401(k) Savings Plan,
dated December 22, 1994, effective January 1, 1995
(incorporated by reference to Exhibit 10.7 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1994, SEC File No 1-4300).
+10.8 -- Non-Qualified Retirement/Savings Plan of Apache
Corporation, dated November 16, 1989 (incorporated by
reference to Exhibit 10.11 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1989,
SEC File No. 1-4300).
+10.9 -- Apache International, Inc. Common Stock Award Plan,
dated February 12, 1990 (incorporated by reference to
Exhibit 10.13 to Registrant's Annual Report on Form
10-K for year ended December 31, 1989, SEC File No.
1-4300).
+10.10 -- Apache Corporation 1990 Phantom Stock Appreciation
Plan, dated as of September 28, 1990 (incorporated by
reference to Exhibit 10.17 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1990,
SEC File No. 1-4300).
+10.11 -- Apache Corporation 1990 Stock Incentive Plan, dated as
of September 28, 1990 (incorporated by reference to
Exhibit 10.18 to Registrant's Annual Report on Form
10-K for year ended December 31, 1990, SEC File No.
1-4300).
72
EXHIBIT INDEX - (Continued)
EXHIBIT NO. DESCRIPTION
----------- -----------
+10.12 -- Amendment No. 1 to the Apache Corporation 1990 Stock
Incentive Plan, dated as of July 17, 1992 (incorporated
by reference to Exhibit 4.4 to Registrant's
Registration Statement on Form S-8, Registration No.
33-53442, filed October 19, 1992).
+10.13 -- Apache Corporation 1995 Stock Option Plan, adopted
February 9, 1995 (incorporated by reference to Exhibit
10.13 to Registrant's Annual Report on Form 10-K for
year ended December 31, 1994, SEC File No. 1-4300).
+10.14 -- Apache Corporation Income Continuance Plan, as amended
and restated February 24, 1988 (incorporated by
reference to Exhibit 10.19 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1990,
SEC File No. 1-4300).
+10.15 -- Apache Corporation Directors' Deferred Compensation
Plan, as amended and restated September 14, 1994
(incorporated by reference to Exhibit 10.15 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1994, SEC File No. 1-4300).
+10.16 -- Apache Corporation Phantom Stock Appreciation Plan for
Directors, effective as of May 4, 1989 (incorporated by
reference to Exhibit 10.22 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1990,
SEC File No. 1-4300).
+10.17 -- Apache Corporation Outside Directors' Retirement Plan,
effective December 15, 1992 (incorporated by reference
to Exhibit 10.25 to Registrant's Annual Report on Form
10-K for year ended December 31, 1992, SEC File No.
1-4300).
+10.18 -- Apache Corporation Equity Compensation Plan for
Non-Employee Directors, adopted February 9, 1994, and
form of Restricted Stock Award Agreement (incorporated
by reference to Exhibit 10.26 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1993,
SEC File No. 1-4300).
+10.19 -- Amended and Restated Employment Agreement, dated
December 5, 1990, between Registrant and Raymond Plank
(incorporated by reference to Exhibit 10.9 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1990, SEC File No. 1-4300).
+10.20 -- Amended and Restated Employment Agreement, dated
December 20, 1990, between Registrant and John A. Kocur
(incorporated by reference to Exhibit 10.10 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1990, SEC File No. 1-4300).
+10.21 -- Employment Agreement, dated March 20, 1991, between
Registrant and William J. Johnson (incorporated by
reference to Exhibit 10.15 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1992,
SEC File No. 1-4300).
+10.22 -- Employment Agreement, dated June 6, 1988, between
Registrant and G. Steven Farris (incorporated by
reference to Exhibit 10.6 to Registrant's Annual Report
on Form 10-K for year ended December 31, 1989, SEC File
No. 1-4300).
+10.23 -- Consulting Agreement, dated November 1, 1993, between
Registrant and John A. Kocur (incorporated by reference
to Exhibit 10.30 to Registrant's Annual Report on Form
10-K for year ended December 31, 1993, SEC File No.
1-4300).
+10.24 -- Consulting Agreement, effective April 28, 1994, between
Registrant and William J. Johnson (incorporated by
reference to Exhibit 10.24 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1994,
SEC File No. 1-4300).
73
EXHIBIT INDEX - (Continued)
EXHIBIT NO. DESCRIPTION
----------- -----------
+10.25 -- Consulting Agreement, effective January 1, 1995,
between Registrant and John L. Moran (incorporated by
reference to Exhibit 10.25 to Registrant's Annual
Report on Form 10-K for the year ended December 31,
1994, SEC File No. 1-4300).
10.26 -- Indenture, dated as of April 1, 1988, between DEKALB
and Continental Illinois Bank and Trust Company of
Chicago, as trustee, relating to the 10% Long-Term
Notes and 9.875% Long-Term Notes (incorporated by
reference to Exhibit 4(a) to DEKALB's Registration
Statement on Form S-3, Registration No. 33-12534, filed
March 11, 1987).
10.27 -- Extendible Revolving Term Credit Agreement, dated
November 19, 1992, between DEKALB Energy Canada Ltd.
and the Royal Bank of Canada (incorporated by reference
to Exhibit 4.2 to DEKALB's Annual Report on Form 10-K
for year ended December 31, 1992, SEC File No. 0-2886).
+10.28 -- DEKALB Stock Option Plan and form of Stock Option
Agreement (incorporated by reference to Exhibits 10.1
and 10.2 to DEKALB's Annual Report on Form 10-K for
year ended August 31, 1986, SEC File No. 0-2886).
+10.29 -- Letter Agreement, dated July 23, 1992, between DEKALB
and Vincent J. Tkachyk (incorporated by reference to
Exhibit 10.3 to DEKALB's Annual Report on Form 10-K for
year ended December 31, 1992, SEC File No. 0-2886).
+10.30 -- DEKALB Deferred Management Employees Compensation Plan,
revised as of July 1, 1983, (incorporated by reference
to Exhibit 10.13 to DEKALB's Annual Report on Form 10-K
for year ended December 31, 1988, SEC File No. 0-2886).
+10.31 -- Employment Agreements between DEKALB and Bruce P.
Bickner, dated January 1, 1992, and John H. Witmer,
Jr., dated January 1, 1992 (incorporated by reference
to Exhibits 10.14 and 10.15 to DEKALB's Annual Report
on Form 10-K for year ended December 31, 1991, SEC File
No. 0-2886).
+10.32 -- DEKALB Long Term Incentive Plan, dated February 28,
1990 (incorporated by reference to Exhibit 10.16 to
DEKALB's Quarterly Report on Form 10-Q for quarter
ended March 31, 1990, SEC File No. 0-2886).
10.33 -- Firm Transportation Service Agreement, dated April 25,
1991, between DEKALB and Pacific Gas Transmission
Company (incorporated by reference to Exhibit 10.9 to
DEKALB's Annual Report on Form 10-K for year ended
December 31, 1992, SEC File No. 0-2886).
10.34 -- Asset Purchase and Sale Agreement, dated July 8, 1992,
between DEKALB and Louis Dreyfus Gas Holdings Inc.
(incorporated by reference to Exhibit 10.10 to DEKALB's
Current Report on Form 8-K, dated October 16, 1992, SEC
File No. 0-2886).
+10.35 -- DEKALB Profit Based Thrift Plan, effective September 1,
1989, as amended August 14, 1991 (incorporated by
reference to Exhibit 10.11 to DEKALB's Annual Report on
Form 10-K for year ended December 31, 1992, SEC File
No. 0-2886).
+10.36 -- Temporary Consulting Contracts between DEKALB and
Donald McMorland, dated June 1, 1994, and John Leteta,
dated November 28, 1994 (incorporated by reference to
Exhibits 10.11 and 10.12 to DEKALB's Annual Report on
Form 10-K for year ended December 31, 1994, SEC File
No. 0-2886).
74
EXHIBIT INDEX - (Continued)
EXHIBIT NO. DESCRIPTION
----------- -----------
*11.1 -- Statement regarding computation of earnings per share
of Registrant's common stock for the year ended
December 31, 1994.
*21.1 -- Subsidiaries of Registrant
*23.1 -- Consent of Arthur Andersen LLP
*23.2 -- Consent of Coopers & Lybrand
*23.3 -- Consent of Ryder Scott Company Petroleum Engineers
*27.1 -- Financial Data Schedule
- ---------------
* Filed herewith.
+ Management contracts or compensatory plans or arrangements required to be
filed herewith pursuant to Item 14 hereof.
Note: Debt instruments of the Registrant defining the rights of long-term
debt holders in principal amounts not exceeding 10 percent of the
Registrant's consolidated assets have been omitted and will be provided
to the Commission upon request.